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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This is an appeal of the revenue directed against the order passed by the Learned Commissioner of Income Tax (Appeals) – 12, Kolkata (in short the ld CITA) in Appeal No. 601/CIT(A)-12/Circle-8(2)/2014-15 dated 19.09.2016 against the order of assessment framed by the Learned DCIT, Circle-8, Kolkata (in short the ld AO) u/s 143(3) of the Act dated 18.03.2013 for the Asst Year 2010-11.
2 M/s Nursing Vanijya Pvt. Ltd. A.Yr. 2010-11 2. The first issue to be decided in this appeal of the revenue is as to whether the Ld. CIT(A) was justified in deleting the disallowance made by the ld. AO u/s 14A of the Act read with Rule 8D of the Rules, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a company engaged in the business of trading in hardware materials and also infrastructure machinery hire business. The return of income for the assessment year 2010-11 was filed on 30.09.2010 declaring total income of Rs. 1,67,40,250/-. The ld. AO observed that the assessee has shown exempt dividend income of Rs. 39,615/- out of its investments in shares/units of mutual funds. No amount has been offered for disallowance u/s 14A of the Act by the assessee in the return of income. The assessee when show caused in this regard filed a detailed written submission which has also been acknowledged by the ld. AO in his assessment order. The ld. AO however did not heed to the contentions of the assessee and observed that since the assessee has made substantial investments and had claimed exempt income, disallowance u/s 14A is to be made in accordance with Rule 8D(2) of the Rules. Accordingly, he made disallowance of Rs. 4,83,494/- under second and third limb of Rule 8D(2) of the Rules. The Ld. CIT(A) deleted the disallowance made by the ld. AO in the sum of Rs. 4,83,494/- on the ground that the ld. AO had not recorded any satisfaction as to why the claim made by the assessee that no expenditure was incurred for the purpose of earning exempt income was incorrect in terms of section 14A(2) of the Act read with Rule 8D(1) of the Rules. In support of this proposition, the Ld. CIT(A) placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. REI Agro Limited in G.A. No. 3022 of 2013, ITAT No. 161 of 2013 dated 23.12.2013. Aggrieved the revenue is in appeal before us on the following ground:
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO under sec. 14A read with Rule 8D. 2
3 M/s Nursing Vanijya Pvt. Ltd. A.Yr. 2010-11 4. We have heard the rival submissions. We find that the ld. DR vehemently argued that the Ld. CIT(A) ought to have directed the ld. AO to consider only dividend bearing investments for the purpose of computing disallowance under the second and third limb of Rule 8D(2) of the Rules in accordance with the decision of the Co- ordinate Bench of this Tribunal in the case of REI Agro Limited reported in 144 ITD 143 (Kol Trib.). He argued that without giving this direction, the Ld. CIT(A) erred in deleting the entire disallowance of Rs. 4,83,494/- given by the ld. AO u/s 14A read with Rule 8D of the Rules. We find that the Ld. CIT(A) had relied on decision of Hon’ble Jurisdictional High Court in the case of CIT vs. REI Agro Limited in G.A. No. 3022 of 2013, ITAT No. 161 of 2013 dated 23.12.2013 wherein it has been categorically held that the ld. AO is duty bound to record his satisfaction with cogent reasons having regard to the accounts of the assessee as to, why the claim made by the assessee, that no expenditure has been incurred, is incorrect. This is the mandate provided in section 14A(2) of the Act read with Rule 8D(1) of the Rules. The legislature in its wisdom had mandated the recording of such satisfaction as a condition precedent before resorting to Rule 8D(2) of the Rules. Since the satisfaction was not recorded by the ld. AO, the disallowance made thereon does not deserve to be sustained in the light of decision of Hon’ble Jurisdictional High Court supra wherein it was held that:
4.1. The ld. DR did not advance any argument with regard to non-recording of satisfaction by the assessee before resorting to computation mechanism provided in Rule 8D2(2) of the Rules. In view of the above, we find no justifiable reason to interfere with the order of the Ld. CIT(A) in this regard. Accordingly, ground no. 1 raised by the revenue is dismissed.
The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in restricting the disallowance u/s 40a(ia) of the Act of Rs. 30,67,171/- as against the disallowance made by the ld. AO in the sum of Rs. 61,99,273/-, in the facts and circumstances of the case.
The brief facts of this issue is that the ld. AO observed that the assessee had paid hire charges amounting to Rs. 61,99,273/- without deduction of tax at source thereby violating the provisions of section 194C of the Act. Accordingly, the ld. AO disallowed the entire expenditure of Rs. 61,99,273/- u/s 40a(ia) of the Act. Before the Ld. CIT(A), the assessee produced additional evidences to prove that Rs. 31,32,102/- was paid to 4
5 M/s Nursing Vanijya Pvt. Ltd. A.Yr. 2010-11 M/s SREI Infrastructure Finance Ltd. towards hire charges. It is clear that the said sum was duly shown by the payee in their computation of income and taxes paid thereon and in support of which a certificate from the CA in terms of first proviso to section 201(1) was also enclosed thereon. The Ld. CIT(A) duly called for the remand report from the ld. AO. The Ld. CIT(A) observed that the payee i.e. M/s SREI Infrastructure Finance Ltd. has paid taxes by including the subject mentioned receipt of Rs. 31,32,102/- in its return and the same is also supported by the certificate issued by the CA of the payee and accordingly held that no disallowance could be inflicted on the assessee u/s 40a(ia) of the Act in view of the second proviso to section 40a(ia) read with section 201 of the Act. The Ld. CIT(A) however stated that the disallowance in the sum of Rs. 30,67,171/- (6199273 – 3132102) made by the ld. AO is to be sustained. Aggrieved, the revenue is in appeal before us on the following ground:
2. Whether on the facts and circumstances of the case Ld. CIT(A) was justified in deleting the disallowance of Rs. 31,32,102/- u/s 40(a)(ia) of the IT Act, 1961 and if he was justified contravention of Rule 46A(3) of the Income Tax Rules, 1962.
We have heard rival submissions. At the outset, we find that the ld. DR was not able to produce any evidence as to where there was a violation of Rule 46A(3) of the Rules as mentioned in the grounds of appeal of the revenue. In the instant case, the additional evidences filed by the assessee before the Ld. CIT(A) were duly subjected to remand before the ld. AO and the ld. AO had also submitted his remand report after examining the said documents. The Ld. CIT(A) had given a factual finding that a sum of Rs. 31,32,102/- representing hire charges paid to SREI Infrastructure Finance Ltd. had been credited as income in the returns of the payee and due taxes were paid thereon by the payee which is evident from the certificate issued by the CA in this regard. This factual finding has not been controverted by the revenue before us. We also find that the legislature had introduced second proviso to section 40a(ia) of the Act to facilitate the action of the Ld. CIT(A) in this regard. This proviso has been held to be retrospective in 6 M/s Nursing Vanijya Pvt. Ltd. A.Yr. 2010-11 operation by the decision of Hon’ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township Pvt. Ltd. reported in 377 ITR 635. This decision has been subsequently followed by the Hon’ble Jurisdictional High Court in the case of PCIT vs. Tirupati Construction in GA No. 2146/2016, ITAT No. 287 of 2016 dated 29.08.2016. Respectfully following the said decision wherein it has been held that second proviso to 40a(ia) is retrospective in operation, we do not find any infirmity in the order of the Ld. CIT(A) granting relief to the tune of Rs. 31,32,102/- to the assessee. Accordingly, ground no. 2 raised by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 11.04.2018