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Income Tax Appellate Tribunal, “L”
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:
The present Appeal filed by the assesseeis against the order of Ld. Commissioner of Income Tax (Appeal) – 3, Mumbai Tata Lokheed Martin Aerostructures Ltd. dated 29.01.16 for AY 2011-12 on the grounds mentioned herein below:-
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 appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
The brief facts of the case are that the assessee is engaged in the business of assembly, manufacture and supply of advance space, aviation, homeland security and defense related technologies. In furtherance thereof, it has entered into Joint Venture Agreement with Lockheed Martin Aeorstructure Corporation (Lockheed Martin) a wholly owned subsidiary of Lockheed Martin Corporation USA for the purpose of assembling, manufacturing and supplying of C130/C130J aircraft structural articles i.e. empennages and center wing box (finished products). The appellant filed its return of income on 30.09.2011 declaring loss of Rs. 2,11,01,649/, The total income of the appellant was calculated at Nil.
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).
We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the Tata Lokheed Martin Aerostructures Ltd. orders passed by revenue authorities. As per the facts of the present case, the assessee has received dividend income of Rs. 11,87,282/- which has been claimed exempt u/s 10(34) of the I.T. Act. As the assessee had not made any disallowance against the dividend income and the AO while invoking rule 8D(2)(iii) of I.T. Rules had made disallowance of Rs. 39,84,218/-. Ld. AR submitted that the assessee had not incurred expenditure for the purpose of making investment in the units of mutual funds and holding thereof as the year end. It was also submitted that AO should not have invoked the provisions of section 14A and rule 8D for making any disallowance as no expenditure was incurred for the investments in mutual funds. Ld. AR further submitted that the assessee had acquired funds from share capital which was not immediately required to utilize for the business purposes, therefore, it had invested in the mutual funds. 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 following judgments judgments:-
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.
Our attention was drawn to the judgments of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd, Hon’ble Kolkata Tribunal in the case of Tata Lokheed Martin Aerostructures Ltd. Champion Commercial Co. Ltd (2012) 139 ITD 108(Kol). 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:- "(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 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.”
Considering the facts and circumstances of the case we find that 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. The Ld. CIT(A) while partly allowing this ground had estimated the administrative expenses and restricted the disallowance of Rs. 22,37,456/-. Be that as it ma, 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 afresh order of assessment. It is needless here to mention that before passing the order of assessment, the AO shall provide Tata Lokheed Martin Aerostructures Ltd. 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 allowed for statistical purposes.
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.
In the net result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 12th Jan 2018 Sd/- Sd/- (Shamim Yahya) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 12.01.2018 Sr.PS. Dhananjay Tata Lokheed Martin Aerostructures Ltd. आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) आयकरआयुक्त/ CIT- concerned 4. 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,