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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Assessee by : Sh. SN Nanda, CA Revenue by: Sh. FR Meena, Sr. DR Date of Hearing 12/04/2017 Date of pronouncement 18/04/2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT(A)-XXII, New Delhi dated 26.02.2014, who confirmed the disallowance of Rs. 1308400/- u/s 14A of the Income Tax Act, 1961. The assessee has raised in all six grounds of appeal whereas, the only issue is disallowance u/s 14A of the Act. The assessee has raised the following grounds of appeal:- 2. “1. Learned Commissioner of Income Tax (Appeals) erred in not deleting addition of Rs.13,08,400/- made u/s 14A of Income Tax Act, 1961.
2. Learned Commissioner of Income Tax (Appeals) did not appreciate that appellant has not incurred any expenditure for earning Tax Free Income.
3. Learned authorities below have failed to determine the expenses if any, incurred for earning for Tax Free Income.
4. Learned Commissioner of Income Tax (Appeals) failed to appreciate that most of investments were made in previous years.
5. Learned Commissioner of Income Tax (Appeals) failed to appreciate that the facts of the appellant's case and that of Justice Sam P Bharucha v/s Additional CIT-11(3), Mumbai, ITAT MUMBAI BENCH T and Mr. Joseph Vellapally v/s ACIT, Circle 37(1), New Delhi, ITAT DELHI are identical.
6. Learned authorities below invoked the provisions of Rule 8D on wild guess.”
Page 2 of 3 3. The brief facts of the case is that the appellant is an individual engaged in the business of manufacture and export of readymade garments who filed his return of income on 29.09.2009 showing income of Rs. 54697031/-. During the course of assessment proceeding it was found that assessee has earned tax free income of Rs. 79323400/- and no disallowance u/s 14A of the Act was made. Therefore, the ld AO applied the provisions of section 14A with Rule 8D and worked out disallowance of Rs. 1308400/- despite the claim of the assessee that it has not done anything to earn these exempt income and therefore no expenditure incurred. It was further stated that shares were purchased in earlier years and dividend income is directly credited to the bank account. Further, maturity proceeds are also credit straightway to bank account. Consequently, the income of the assessee was assessed at Rs. 56374702/- u/s 143(3) vide order dated 30.12.2011 wherein, the disallowance of Rs. 1308400/- u/s 14A was made. The assessee contested before the ld CIT(A) who dismissed the appeal of the assessee relying on the decision of the coordinate bench in case of ITO Vs. Daga Capital Management Pvt. Ltd 312 ITR (AT) 1. The assessee being aggrieved is in appeal before us.
The ld AR submitted that the assessee has not incurred any expenditure for earning exempt income and as such the claim of the assessee is not found to be false but the AO has mechanically the provision of Rule 8D without recording any satisfaction.
The ld DR relied upon the orders of lower authorities.
We have carefully considered the rival contentions and also perused the orders of the lower authorities. So far as the applicability of Rule 8D for the impugned Assessment Year is concerned we fully agree that disallowance is required to be if at all any applying the provisions of Rule 8D only provided the basic condition of sub-section 2 of section 14A are satisfied. According to section 14A(2) the ld Assessing Officer can proceed to disallow expenditure in accordance with Rule 8D only when he records the satisfaction about the correctness of the claim of the assessee with respect to any disallowance made by the assessee himself or no disallowance has been made by the assessee, after examining the books of account of the assessee. In the present case we do not find any such exercise carried out