Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Mahavir Singh & Shri Rajesh Kumar
This appeal has been filed by the assessee against the order of the CIT(A)-7, Mumbai dated 12.10.2012 for A.Y. 2008-09.
The only issue raised by the assessee in the various grounds of appeal is against the confirmation of disallowance of `51,42,051/- by CIT(A) as made by the AO under Section 14A of the Income Tax Act, 1961 (hereinafter “the Act”).
3. The brief facts of the case are that the assessee filed return of income on 26.09.2008 declaring an income of `6,06,89,929/- which was processed under Section 143(1) of the Act . Thereafter the case of the assessee was selected for scrutiny through CASS and notice under Section 143(2) of the Act was issued on 05.08.2009. During the course of assessment proceedings the AO noticed that the assessee has received dividend income of `163.08 lakhs which was claimed as exempt. The AO found that the assessee has not disallowed any expenditure which was attributable to earning of the said exempt income and accordingly called
M/s. Unilever India Export Ltd. upon the assessee as to why the provisions of Section 14A of the Act should not be invoked. The assessee replied that it has not incurred any expenditure for earning exempt income and therefore no disallowance was made. The AO, not accepting explanation of the assessee, the worked out the disallowance under Section 14A of the Act r.w. Rule 8D at `51,42,051/- and added the same to the total income of the assessee by framing assessment under Section 143(3) vide order dated 27.12.2010 assessing the income at `6,58,31,980/-.
In the appellate proceedings the CIT(A) dismissed the appeal of the assessee by holding that the assessee itself filed the working of disallowance under Section 14A of the Act to the tune of `51,42,051/-. The learned CIT(A) further observed that in the case of Godrej & Boyce Manufacturing Company Ltd. 328 ITR 81 the Hon'ble Bombay High Court had held that Rule 8D is applicable from A.Y. 2008-09 onwards and thus justified the disallowance under Section 14A of the Act r.w. Rule 8D. Aggrieved by the order of the CIT(A), the assessee is in appeal before us.
The learned A.R. vehemently submitted before us that the AO while invoking the provisions of Section 14A of the Act r.w. Rule 8D did not record any satisfaction as to how the explanation offered by the assessee was not correct having regards to the books of accounts, which was a mandatory requirement of law before invoking provisions of Section 14A of the Act. The learned A.R. took us through para 3 of the assessment order and submitted that nowhere the AO has pointed out that the assessee’s claim is wrong and by simply asking for the working of disallowance the AO proceeded to add the sum to the income of the assessee. The AO even disregarded the pleas of the assessee that the assessee has sufficient interest free funds available with it and no expenditure was incurred for earning dividend which yielded tax free income. The learned A.R. finally relied on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. 328 ITR 81 and the decision of the Hon'ble Delhi High Court in the case CIT vs. I.P. Support Services India (P) Ltd. in ITA 283/2014 order dated 24.09.2015. The learned A.R. pleaded before the Bench that in view of the M/s. Unilever India Export Ltd. ratio laid down in these decisions the addition confirmed by the learned CIT(A) deserves to be deleted.
The learned D.R., on the other hand, relied heavily on the order of the CIT(A) by praying that operation of provisions of Section 14A r.w. Rule 8D is effective from A.Y. 2008-09 and thus the CIT(A) has passed a reasoned order as per the provisions of law.
We have heard the contentions of both the parties, perused the material on record and the decisions referred by the learned A.R. during the course of hearing. A perusal of the order of the AO reveals that no satisfaction has been recorded before invoking provisions of Section 14A r.w. Rule 8D, which is a mandatory requirement of law that the AO has first to record the reasons as to why the claim of the assessee was wrong having regard to the accounts maintained by the assessee. Thus in our opinion the provisions of section 14A of the Act has been invoked by the AO without recording any satisfaction whatsoever and in such a scenario we are not in agreement with the conclusion drawn by the CIT(A) while confirming the addition. The case of the assessee is also supported by the decision if I.P. Support Services India (P) Ltd. (supra) wherein it has been clearly held that while invoking the provisions of Section 14A r.w. Rule 8D satisfaction is mandatorily be recorded by the AO. Otherwise, in the absence of such satisfaction the addition would not be possible to be made. We, therefore, respectfully following the ratio the ratio laid down in the above decision set aside the order of the CIT(A) and direct the AO to deletion the addition.
In the result, the appeal filed by the assessee is allowed.