DCIT CC 4(1) CEN RG 4, MUMBAI vs. BIJESH THAKKAR, MUMBAI

O R D E R

Per R.C. Sharma, AM

in the present appeal have already been decided by Hon’ble ITAT in for AY 2008-09 in assessee's own case on merits and this facts is also contained in the orders passed by Ld. CIT(A).The operative portion of the order of Hon'ble ITAT is contained in para no. 5 of its order and the same is reproduced below: - We have heard the rival contentions and gone through the facts and circumstances of the Case. We find that neither the AO nor CIT(A) has recorded any satisfaction in applying Rule 8D (2) (iii) despite the fact that the assessee himself offered a sum of Rs. 1 lac towards disallowance under section 14A of the Act. There is no basis given by AO while making this disallowance or how he is not satisfied with the correctness of the Account of the assessee. We find that Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR

81. (Bom) has emphasized on satisfaction as under: - What merits emphasis is that the jurisdiction of the Assessing officer to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the Rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is Shri Bijesh Thakkar correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has be'en incurred in relation to income- which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the Rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act…….

6. From the above judgment of the Hon'ble Bombay High Court and the facts of the case that the AO has not recorded satisfaction qua the incorrectness of the accounts of the assessee, we delete the disallowance and allow the appeal of the assessee. After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and the order of Hon'ble ITAT and submissions made by both the parties we find that the similar issues are covered by the order of Hon'ble ITAT in assessee's own case in for AY 2008-09. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT in ITA No. 4694/Mum/2012 for AY 2008-09 in assessee's own case and the same facts also contained in the orders passed by Ld. CIT(A), we have no reasons to interfere into or deviate from the findings recorded by the Ld. CIT(A) as the same are based on the orders passed by the Hon’ble ITAT. Hence, we are of the considered view that the findings so recorded by the Ld. CIT(A) are judicious and are well reasoned. Resultantly, these grounds raised

by the revenue stands dismissed.”

5. Disallowance made under Section 40(a)(ia) was also deleted by the Tribunal after having the following observation: - “9. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that Ld. CIT(A) has decided this issue in para no. 2(2.1 to 2.3) of its order and deleted the addition made u/s 40(a)(ia) of the I.T. Act. On two counts. The Ld. CIT(A) had categorically held that the services rendered by Shri C. Z. Shah was in the nature of 'managerial services’ as defined under explanation-2 Shri Bijesh Thakkar to section 9(1 )(7) of the I.T. Act. Therefore, Shri C. Z. Shah has not providing any 'professional services’ and not performing independent activity -similar to 'professional services’ within the meaning of Article-1 5 of India-UK, DTAA. Therefore, fee paid to Shri C. Z. Shah by the assessee falls u/s 9(l)(vii)(b) and thereby such income in the hands of Shri C. Z. Shah is deemed to arise in India u/s 9 of the Act. It was further held that although, such services are also covered by provisions of Article 13 of India-UK, DTAA, but Shri C.Z. Shah have rendered such services which does not make available any technical knowledge to the appellant. Therefore, such services rendered by Shri C.Z. Shah was held to be outside the purview of Article 13 of India- UK, DTAA, which have overriding effect over the I.T. Act, thus the amount was not payable in India, and no tax was required to be deducted.”

Order pronounced in the open court on 30th July, 2018.