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Income Tax Appellate Tribunal, “D”
Before: HON’BLE SH. R. C. SHARMA, AM & HON’BLE SH. SANDEEP GOSAIN, JM
स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACD5533A (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Pankaj R. Toprani प्रत्यथीकीओरसे/Respondentby : Shri Chaitanya Anjaria सुनवाईकीतारीख/ : 07/08/2018 Date of Hearing घोषणाकीतारीख / : 08/08/2018 Date of Pronouncement आदेश / O R D E R
Per Sandeep Gosain, Judicial Member:
The present Appeal filed by the assesseeis against the order of Ld. Commissioner of Income Tax (Appeal) – 6, Mumbai dated 18.01.2017 for AY 2013-14.
The brief facts of the case are that the assessee e-filed its return of income for the year under consideration, declaring total income at Rs. 5,15,46,140/-. The AO completed the assessment u/s 143(3) of the Act, thereby determining total income at Rs. 5,41,79,350/- under normal provisions of the Act and book profit of Rs. 5,93,50,872/- u/s 115JB of the Act. In the assessment order, the disallowance u/s 14A r.w.r. 8D was computed at Rs. 18,21,811/- under normal provisions of the Act and Rs. 18,21,811/- u/s 115JB of the Act.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties dismissed the appeal of the assessee.
Now before us, the assessee has preferred the present appeal.
Although the assessee has raised four grounds of appeal but all are inter related and inter connected and relates to one M/s Damani Shipping Pvt. Ltd. solitary issue against challenging the order of Ld. CIT(A) in upholding the disallowance of Rs. 18,21,811/- u/s 14A r.w.r. 8D.
We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. As per the facts of the present case, the AO noticed that the assessee had earned dividend income of Rs. 1,11,57,291/- which includes dividend on mutual fund of Rs. 1,07,37,843/- and dividend from Indian company of Rs. 4,19,448/- and the same has been claimed exempt u/s 10(34) of the I.T. Act. The assessee had made disallowance u/s 14A at Rs. 2,03,999/- in the computation of income. Ld. AR submitted that the assessee had utilized wealth management services of various funds in investing the funds. They had taken full responsibility in opening the account etc for which the assessee had paid Rs. 2,03,999/- as management fee, which has been disallowed by the company in its computation of income. It was also submitted that the dividend is received M/s Damani Shipping Pvt. Ltd. through ECS system and the assessee’s staff is not involved in doing any formalities, etc. Ld. AR further submitted that the AO had not recorded any satisfaction as to the correctness of the claim of the assessee having regard to the account of assessee. The Ld. AR also relied upon the orders passed by the Coordinate Bench of ITAT in the case of Swapna Murarka Vrs. ACIT (2015) 58 taxmann.com 369 (Mum-Trib).
On the other hand, Ld. DR relied upon the orders passed by revenue authorities and submitted that since the assessee had not submitted any documents to establish that all the investments which yield exempt income were managed by the wealth management services and that no investments were managed by the assessee itself.
Before we decide the merits of the case, it is necessary to evaluate the provisions of sub section (2) to section 14A of the I.T. Act which is as under:-
M/s Damani Shipping Pvt. Ltd. "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, f the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such in relation to income which does not form part of the total income under this Act."
Further the Mumbai Tribunal has also in the case of M/s Auchtel Products Ltd. (2012) 52 SOT 39 has held that no disallowance can be made by the AO without recording a satisfaction that the explanation given by the assessee is not proper. The operative para is reproduced below.
“ 15. A bare perusal of the above provisions indicates that the AO shall determine the amount disallowable as per Rule 8D, if he, "is not satisfied with the correctness of the claim of the assessee" in respect of such expenditure in relation to exempt income. Even if the assessee claims that no expenditure was incurred in respect M/s Damani Shipping Pvt. Ltd. of exempt income, the AO is supposed to follow the mandate of Rule 8D if he is not satisfied with the correctness of the assessee's claim. To put it simply, the further disallowance u/s.14A is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D. Such satisfaction can he reached and recorded only when the claim of the assessee is verified. If the assessee proves before the AO that it incurred a particular expenditure in respect of earning the exempt income and the AO gets satisfied, then there is no requirement to still proceed with the computation of amount disallowable as per Rule 8D. From the assessment order, it is observed that the AO simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule 8D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course M/s Damani Shipping Pvt. Ltd. adopted by the AO. The correct sequence, in our considered opinion, for making any disallowance u/s. 14A is to, firstly, examine the assessee's claim of having incurred some expenditure or no expenditure' in relation to exempt income. If the AO gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of Rule 8D will operate. In the instant case, the authorities below have directly gone to the second stage of computing disallowance u/s. 144 as per Rule 8D without rendering any opinion on the correctness or otherwise of the assessee claim in this regard. We, therefore, set aside the impugned order on this issue and restore the matter to the file of AO to recompute disallowance, if any, in accordance with our above observations after duly examining the assessee’s claim in this regard.”
M/s Damani Shipping Pvt. Ltd.
Considering the facts and circumstances of the case we find that the assessee has placed on record Ledger report with regard to making payments on account of management fee at page no. 64/65 of the paper book and bill dated 02.04.12 issued by HDFC Portfolio Management to the assessee at page no. 66 of the paper book, which also reflects regarding payment of management fee @ 2% for the period from 01.04.12 to 30.06.12. Apart from that the assessee has placed on record other documents in order to show the utilization of wealth management services. On the contrary, the AO has not recorded its satisfaction by giving specific reasons as to the correctness of the claim of the assessee having regard to the accounts of the assessee. Be that as it may, since the AO has not recorded its satisfaction by giving specific reasons as to the correctness of the claim of the assessee, therefore, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to verify regarding the claim of assessee that no expenses were incurred for earning the exempt income, having regard to the accounts of the assessee. The AO shall also verify any other claim if so raised by the assessee, and thereafter pass M/s Damani Shipping Pvt. Ltd. afresh order of assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide sufficient opportunity of hearing to the assessee. Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law. Resultantly, this ground is partly allowed.
In the net result, the appeal filed by the assessee is partly allowed with no order as to cost. Order pronounced in the open court on 8th August 2018 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 08.08.2018 Sr.PS. Dhananjay M/s Damani Shipping Pvt. Ltd. आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent आयकरआयुक्त(अपील) / The CIT(A) 3. 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,