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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
आदेश / ORDER PER SUSHMA CHOWLA, JM:
The appeal filed by the assessee is against the order of CIT(A)-I, Pune, dated 31.11.2015 relating to assessment year 2009-10 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:- 1. The learned CIT(A)-1, Pune erred in law and on facts in confirming the disallowance made by the learned DCIT, Circle 1(1), PUne, u/s 14A; amounting to Rs.4,53,019/-. The learned CIT(A)-1, Pune ought to have appreciated that the said disallowance is without any real satisfaction as required u/s 14A of the ITA, 1961. 2. Alternatively and without prejudice, the disallowance u/s 14A made by the learned I-T authorities may please be restricted at some reasonable estimate levels, as submitted before the I-T authorities.
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The issue raised in the present appeal is against disallowance made under section 14A of the Act at ₹ 4,53,019/-. The assessee is aggrieved by the order of Assessing Officer in making aforesaid disallowance without recording satisfaction in line with provisions of section 14A(2) of the Act.
The learned Authorized Representative for the assessee pointed out that the issue in the present appeal is squarely covered by the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (2017) 394 ITR 449 (SC) and Maxopp Investment Ltd. Vs. CIT (2018) 91 taxmann.com 154 (SC). He further referred to the decision of the Pune Bench of Tribunal in KPIT Technologies Ltd. Vs. ACIT in ITA No.594/PN/2015, relating to assessment year 2010-11, order dated 12.04.2018.
The learned Departmental Representative for the Revenue pointed out that no manner was prescribed for recording satisfaction under section 14A(2) of the Act. In this regard, he placed reliance on the decision of the Hon’ble High Court of Gujarat in Devarsons Industries (P.) Ltd. Vs. ACIT (2017) 84 taxmann.com 244 (Guj).
The learned Authorized Representative for the assessee in rejoinder pointed out that the Hon’ble High Court of Gujarat has failed to consider the proposition laid down by the Hon'ble Supreme Court.
We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income declaring total income of ₹ 60,63,110/-. The case of
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assessee was picked up for scrutiny. During the course of assessment proceedings, the Assessing Officer noted that the assessee had claimed exempt income in its return of income, but however disallowance under section 14A of the Act was not worked out. The assessee on without prejudice basis, worked out the disallowance at ₹ 4,53,019/- under Rule 8D of the Rules. However, it was mentioned by the assessee that at best, disallowance of ₹ 3,000/- may be made. The contention of assessee was found to be not satisfactory and the Assessing Officer disallowed sum of ₹ 4,53,019/- under section 14A of the Act read with Rule 8D of the Rules.
The CIT(A) upheld the disallowance made by the Assessing Officer rejecting the contention of assessee that in view of non-recording of satisfaction by the Assessing Officer, there was no merit in the disallowance made.
The requirement of section 14A(1) of the Act is that in case where the assessee has earned exempt income which is not taxable in the hands of assessee, then the Assessing Officer has to record satisfaction as per sub- section (2) of section 14A of the Act to come to a finding as to the applicability of provisions of section 14A(1) of the Act. In the absence of recording requisite satisfaction by the Assessing Officer, no disallowance can be made under section 14A of the Act.
We find that similar issue has been considered by the Tribunal in the case of KPIT Technologies Ltd. Vs. ACIT (supra), wherein reliance was placed on the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce
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Manufacturing Company Ltd. (supra) and also in Maxopp Investment Ltd. Vs. CIT (supra) and it was held as under:- “14. We have heard the rival contentions and perused the record. The basic issue which arises in the present appeal is against non-recording of satisfaction by the Assessing Officer before invoking provisions of section 14A of the Act. The assessee is aggrieved by the order of Assessing Officer in working the disallowance under Rule 8D(iii) of the Rules at ₹ 15,50,542/-. 15. We find that similar issue of non-recording of satisfaction by the Assessing Officer arose before the Tribunal in the case of Capgemini Technology Services India Limited Vs. DCIT in ITA No.216/PUN/2015 and Cross Appeal in ITA No.360/PUN/2015, relating to assessment year 2010-11, order dated 25.01.2018. The Tribunal in this regard, held as under:- “34. We have heard the rival contentions and perused the record. The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of Rs.50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- “I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. As per the working of disallowance u/s 14A as per Rule 8D, the amount of disallowance comes to Rs.5,68,32,323/-. The assessee has already disallowed Rs.50,00,000/- in the computation of income.” 35. The requirement of section 14(2) of the Act is that the Assessing Officer is to record as to why the disallowance made by the assessee i.e. Rs.50 lakhs under section 14A of the Act is not correct. The Assessing Officer takes note of the disallowance, considers the explanation of assessee and holds that the contention of assessee cannot be accepted. The preliminary satisfaction to be recorded by Assessing Officer, before making disallowance under section 14A of the Act read with Rule 8D of the Rules, is missing in the case; in the absence of the same, there is no merit in the disallowance made by the Assessing Officer. We find support from the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC).
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“37. We do not see how in the aforesaid fact situation a different view could have been taken for the assessment year 2002-03. Sub-sections (2) and (3) of section 14A of the Act read with rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” (underline provided by us for emphasis) 36. The ratio laid down by the Hon’ble High Court of Delhi in Indiabulls Financial Services Ltd. Vs. DCIT (supra) is thus, not applicable. The ground of appeal No.3 raised by the Revenue is thus, dismissed.” 16. The Hon'ble Supreme Court in Maxopp Investment Ltd. Vs. CIT (supra) has held as under:- “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares / making the investment in shares is to be examined by the AO.” 17. In the present case, the Assessing Officer has failed to record necessary satisfaction as to why suo moto disallowance made by the assessee was not correct and in the absence of the same and applying the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (supra) and in Maxopp Investment Ltd. Vs. CIT (supra), we find no merit in the disallowance worked out by the Assessing Officer by invoking provisions of Rule 8D(iii) of the Rules. In the absence of recording of satisfaction under section 14A(2) of the Act, the action of Assessing Officer is not as per law and the same is reversed. Consequently, the ground of appeal No.2 raised by the assessee is thus, allowed.”
The said proposition has been laid down by the Pune Bench of Tribunal in line with the ratio laid down by the Hon’ble Apex Court. Reliance of the learned Departmental Representative for the Revenue on the ratio laid down by
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the Hon’ble High Court of Gujarat in Devarsons Industries (P.) Ltd. Vs. ACIT (supra) is not justified, wherein the decision of Hon’ble Apex Court has not been considered. In the facts of the present case, where the Assessing Officer has failed to record satisfaction before invoking the provisions of section 14A(1) of the Act, we find no merit in the disallowance worked out by the Assessing Officer and we reverse the same. The disallowance made by the Assessing Officer in this regard, is thus deleted.
In the result, the appeal of assessee is allowed.
Order pronounced on this 17th day of May, 2018.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 17th May, 2018. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; प्रत्यथी / The Respondent; 2. 3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-I, Pune; The Pr.CIT-I, Pune; 4. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “ए” / DR 5. ‘A’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune