TATA LOKHEED MARTIN AEROSTRUCTURES LTD.,HYDERABAD vs. DCIT - 1(3), MUMBAI

DCIT 1(3), Tata Lokheed Martin Aayakar Bhavan, M. K. Aerostructures Ltd. Road, Mumbai-400020 Survey No. 64, Unit No. 1, बिधम/ Building No. 9, 6th floor, Vs. Raheja Mindspace, Madhapur, Hyderabad, Pin 500081 स्थायीलेखासं./जीआइआरसं./ PAN/GIR No. AADCT5968N (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Ms. Aarati Visanji प्रत्यथीकीओरसे/Respondentby : Sh. M. V. Rajguru सुनवाईकीतारीख/ : 22/11/2017 Date of Hearing घोषणाकीतारीख / : 12/01/2018 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

1. In the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) ought to have held that- 1.1 the AU has not recorded his satisfaction before rejecting the appellant's claim that it has not incurred any expenditure for earning exempt income and hence, should have deleted the disallowance of Rs.22,37,456/- made U/s.14A of the Act by invoking the provisions of Sectionl4A read with Rule 8D(2)(iii).

Without prejudice to the above and in the alternate, 1.2 if the provisions of Section 14A of the Act apply to the appellant, then, the disallowance should have been restricted to 5% of the exempt income or such lower rate as the case may be justified as against disallowing 20% of the exempt income.

2. It is humbly prayed that the reliefs as prayed and such other and further reliefs as may be justified by the facts and circumstances of the Tata Lokheed Martin Aerostructures Ltd. case and as may meet the ends of justice, should be granted.

The AO while passing the assessment order disallowed Rs. Tata Lokheed Martin Aerostructures Ltd. 39,84,218/- u/s 14A and pre-operative expenses of Rs. 1,70,26,814/, 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 partly allowed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds.

Ground No. 1. & 1.1 3. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) on the ground that Ld. CIT(A) ought to have held that the AO has not recorded his satisfaction before rejecting the appellant's claim that it has not incurred any expenditure for earning exempt income and hence, should have deleted the disallowance of Rs.22,37,456/- made U/s.14A of the Act by invoking the provisions of Sectionl4A read with Rule 8D(2)(iii).

Tata Lokheed Martin Aerostructures Ltd. (a) CIT v. Hero Management Service Limited (2014) 360 hR 68 (Delhi High Court) (b) CIT v. Printers House Private Ltd. (2010) 188 Taxman 70 (Delhi High Court) (c) Swapna Murarka vs. ACIT [2015] 58 taxmann.com 369 (Mumbai - Tribunal) (d) CIT v. Walfort Share and Stock Brokers Private Limited (2009) 310 ITR 421 (Born) [Affirmed in 326 ITR I (SC)] (e) CIT v. Reliance Industries Ltd. 339 ITR 632 (Born) (f) CIT v. Metalman Auto P. Ltd. (2011) 336 ITR 434 (P&H) (g) CIT v. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) (h) CIT v. Winsome Textile Industries Ltd. 319 hR 204 (P&H) (i) Godrej & Boyce Manufacturing Co Ltd, 328 ITR 81 (Bombay High Court) (j) Wimco Seedlings Ltd. v. DCIT (2007) 107 lTD 267 (De) (TM) (k) Relaxo Footwears Ltd.,V. ACIT (2012) 50 SOT 102 (DEL); (I) Chanakya International Pvt. Ltd.v. ACIT (2013) 36 CCH 032 (Mum); (m) Justice Ram P Bharucha v. Addl. CIT (2012) 53 SOT 192.

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 Tata Lokheed Martin Aerostructures Ltd. 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 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 Tata Lokheed Martin Aerostructures Ltd. 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 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 Tata Lokheed Martin Aerostructures Ltd. above observations after duly examining the assessee’s claim in this regard.”

Ground No. 1.2, 2 & 3 7. Since we have already decided ground no. 1 and restore the matter back to the file of AO, therefore this ground becomes infructuous.