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Facts
The assessee filed its return of income declaring nil income under normal provisions and a book profit of Rs. 4,99,27,801/-. The Assessing Officer (AO) observed dividend income of Rs. 48,21,635/- and made a suo-motu disallowance of Rs. 96,913/- under Section 14A. The AO invoked Rule 8D and computed a further disallowance, making a net addition of Rs. 2,44,06,267/- to the total income.
Held
The CIT(A) deleted the disallowance under normal provisions and Section 115JB, noting that the AO had not recorded dissatisfaction regarding the assessee's suo-motu disallowance. The CIT(A) directed the AO to recompute the disallowance under Section 14A, excluding shares held as stock-in-trade.
Key Issues
Whether the Assessing Officer correctly invoked Rule 8D for disallowance under Section 14A without recording prior dissatisfaction. Whether the CIT(A) was justified in directing recomputation of disallowance.
Sections Cited
14A, 115JB
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
This appeal by the Revenue and cross This appeal by the Revenue and cross-objection by the objection by the assessee are directed against order dated 25.05.2023 passed by the assessee are directed against order dated 25.05.2023 passed by the assessee are directed against order dated 25.05.2023 passed by the Ld. Commissioner of Income Ld. Commissioner of Income-tax (Appeals) – National Faceless National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year assessment year 2017-18 respectively. 18 respectively.
The grounds raised by the Revenue are produced as under: The grounds raised by the Revenue are produced as under: The grounds raised by the Revenue are produced as under:
"Whether on the facts and circumstances of the case and in "Whether on the facts and circumstances of the case and in "Whether on the facts and circumstances of the case and in law, the Ld. CIT is justified in deleting the disallowance made law, the Ld. CIT is justified in deleting the disallowance made law, the Ld. CIT is justified in deleting the disallowance made u/s. 14A of the Act, without u/s. 14A of the Act, without appreciating the fact the assessee appreciating the fact the assessee company had earned exempt income during the year under company had earned exempt income during the year under company had earned exempt income during the year under consideration consideration.
2. Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance law, the Ld. CIT(A) is justified in deleting the disallowance law, the Ld. CIT(A) is justified in deleting the disallowance made u/s. 14A of the Act, witho made u/s. 14A of the Act, without appreciating the latest ut appreciating the latest amendment made in the act, which are clarificatory in nature. amendment made in the act, which are clarificatory in nature. amendment made in the act, which are clarificatory in nature. 3. Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of law, the Ld. CIT(A) is justified in deleting the addition of law, the Ld. CIT(A) is justified in deleting the addition of disallowance to the Book profit u/s. disallowance to the Book profit u/s. 115JB by relying on the relying on the decision of the Hon'ble Supreme Court in the case of PCIT vs. decision of the Hon'ble Supreme Court in the case of PCIT vs. decision of the Hon'ble Supreme Court in the case of PCIT vs. Atria Power Corporation Ltd. wherein the Hon'ble Supreme Atria Power Corporation Ltd. wherein the Hon'ble Supreme Atria Power Corporation Ltd. wherein the Hon'ble Supreme Court had only dismissed the SLP of the Department without Court had only dismissed the SLP of the Department without Court had only dismissed the SLP of the Department without going into merits of the issue? going into merits of the issue? 2.1 The grounds raised by the a The grounds raised by the assessee in the cross ssessee in the cross-objection are reproduced as under: reproduced as under:
On the facts and in the circumstances of the case and in the law, the On the facts and in the circumstances of the case and in the law, the On the facts and in the circumstances of the case and in the law, the Learned CIT(A) erred in directing the Learned AO to recompute the Learned CIT(A) erred in directing the Learned AO to recompute the Learned CIT(A) erred in directing the Learned AO to recompute the disallowance under section 14A of the Act instead of deleting th disallowance under section 14A of the Act instead of deleting th disallowance under section 14A of the Act instead of deleting the disallowance made by the Learned AO in absence of his non disallowance made by the Learned AO in absence of his non disallowance made by the Learned AO in absence of his non- satisfaction with the disallowance offered by the Respondent basis satisfaction with the disallowance offered by the Respondent basis satisfaction with the disallowance offered by the Respondent basis the accounts submitted by the Respondent" the accounts submitted by the Respondent"
Everest Securities And Finance Ltd. Everest Securities And Finance Ltd. 3 & CO No. 8/M/2024 ITA No. 2818/M/2023 & CO No. 8/M/2024
Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its return of income e return of income electronically on 23.11.2017 declaring total lectronically on 23.11.2017 declaring total income of Rs.24,74,82,249/ income of Rs.24,74,82,249/-. However, after adjusting brought . However, after adjusting brought forward business losses nil income was reported under the normal forward business losses nil income was reported under the normal forward business losses nil income was reported under the normal provisions of the Income provisions of the Income-tax Act, 1961 (in short ‘the Act’) and book tax Act, 1961 (in short ‘the Act’) and book profit of Rs.4,99,27,801/ 9,27,801/- was reported u/s 115JB was reported u/s 115JB of the Act (minimum alternative tax). The return of income filed by the (minimum alternative tax). The return of income filed by the (minimum alternative tax). The return of income filed by the assessee was selected for scrutiny assessment and scrutiny notices assessee was selected for scrutiny assessment and scrutiny notices assessee was selected for scrutiny assessment and scrutiny notices under the Act were issued and complied with. During the under the Act were issued and complied with. During the under the Act were issued and complied with. During the assessment, the Assessing O assessment, the Assessing Officer observed that assessee earned fficer observed that assessee earned dividend dividend income income of of Rs.48,21,635/ Rs.48,21,635/- and and made made suo-motu disallowance u/s 14A of the Act amounting to Rs.96,913/-. The disallowance u/s 14A of the Act amounting to Rs.96,913/ disallowance u/s 14A of the Act amounting to Rs.96,913/ Assessing Officer invoked Rule 8D of the Income Assessing Officer invoked Rule 8D of the Income-tax Rules, 1962 (in tax Rules, 1962 (in short ‘the Rules’) and computed the d short ‘the Rules’) and computed the disallowance under Rule isallowance under Rule 8D(2)(ii) of the Rules @ 1% of the annual average of the monthly 8D(2)(ii) of the Rules @ 1% of the annual average of the monthly 8D(2)(ii) of the Rules @ 1% of the annual average of the monthly average of the value of the investment which was worked out to average of the value of the investment which was worked out to average of the value of the investment which was worked out to Rs.2,45,03,180/-. After subtracting . After subtracting suo-motu disallowance of disallowance of Rs.96,913/-, , , the the the Assessing Assessing Assessing Officer Officer Officer made made made net net net addition of Rs.2,44,06,267/- to the total income of the assessee under normal to the total income of the assessee under normal to the total income of the assessee under normal provisions of the Act as well as u/s 115JB of the Act for the provisions of the Act as well as u/s 115JB of the Act for the provisions of the Act as well as u/s 115JB of the Act for the purpose of computation of the book profit. purpose of computation of the book profit.
On further appeal, the Ld. CIT(A) has deleted the disallowance On further appeal, the Ld. CIT(A) has deleted the disallowance On further appeal, the Ld. CIT(A) has deleted the disallowance under the normal provisions of the Act as well as under the the normal provisions of the Act as well as under the the normal provisions of the Act as well as under the provisions of section 115JB of the Act. The Ld. CIT(A) noted that no provisions of section 115JB of the Act. The Ld. CIT(A) noted that no provisions of section 115JB of the Act. The Ld. CIT(A) noted that no Everest Securities And Finance Ltd. Everest Securities And Finance Ltd. 4 & CO No. 8/M/2024 ITA No. 2818/M/2023 & CO No. 8/M/2024 dissatisfaction was recorded by the Assessing Officer on the claim of dissatisfaction was recorded by the Assessing Officer on the cl dissatisfaction was recorded by the Assessing Officer on the cl the assessee for suo-motu motu disallowance u/s 14A of the Act. disallowance u/s 14A of the Act.
Aggrieved, both Revenue and the assessee are before the Aggrieved, both Revenue and the assessee are before the Aggrieved, both Revenue and the assessee are before the Tribunal by way of raising grounds of appeal and cross-objection Tribunal by way of raising grounds of appeal and cross Tribunal by way of raising grounds of appeal and cross respectively.
6. Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Ld. CIT(A) has held that no dissatisfaction was recorded by the Ld. CIT(A) has held that no dissatisfaction was recor Ld. CIT(A) has held that no dissatisfaction was recor Assessing Officer. Therefore, the mandatory requirement of invoking Assessing Officer. Therefore, the mandatory requirement of invoking Assessing Officer. Therefore, the mandatory requirement of invoking Rule 8D has not been met by the Assessing Officer. The Ld. CIT(A) Rule 8D has not been met by the Assessing Officer. The Ld. CIT(A) Rule 8D has not been met by the Assessing Officer. The Ld. CIT(A) has further directed the AO to compute the 14A disallowance by has further directed the AO to compute the 14A disallowance by has further directed the AO to compute the 14A disallowance by excluding held as stock in trade but once the Ld excluding held as stock in trade but once the Ld. CIT(A) has already . CIT(A) has already held that dissatisfaction required as perquisite of invoking Rule 8D satisfaction required as perquisite of invoking Rule 8D satisfaction required as perquisite of invoking Rule 8D has not been made by the AO then no further disallowance could be has not been made by the AO then no further disallowance could be has not been made by the AO then no further disallowance could be made u/s 14A of the Act invoking Rule 8D of the Rules. According made u/s 14A of the Act invoking Rule 8D of the Rules. According made u/s 14A of the Act invoking Rule 8D of the Rules. According to him, this finding of the Ld. CIT to him, this finding of the Ld. CIT(A) of not recording dissatisfaction (A) of not recording dissatisfaction has not been challenged by the Revenue in its ground and has not been challenged by the Revenue in its ground and has not been challenged by the Revenue in its ground and therefore, the appeal of the Revenue fails on this ground only. therefore, the appeal of the Revenue fails on this ground only. therefore, the appeal of the Revenue fails on this ground only.
The Ld. Departmental Representative (DR) on the other hand, The Ld. Departmental Representative (DR) on the other hand, The Ld. Departmental Representative (DR) on the other hand, relied on the order of the Assessi relied on the order of the Assessing Officer.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. As far as the issue of dissatisfaction relevant material on record. As far as the issue of dissatisfaction relevant material on record. As far as the issue of dissatisfaction which was to be recorded by the Assessing Officer u/s 14A of the which was to be recorded by the Assessing Officer u/s 14A of the which was to be recorded by the Assessing Officer u/s 14A of the Everest Securities And Finance Ltd. Everest Securities And Finance Ltd. 5 & CO No. 8/M/2024 ITA No. 2818/M/2023 & CO No. 8/M/2024 Act before invoking Rule 8D. The finding of t Act before invoking Rule 8D. The finding of the Ld. CIT(A) is he Ld. CIT(A) is reproduced as under: reproduced as under:
“5.4 From the perusal of the AO's order it is seen that Rule 8D was 5.4 From the perusal of the AO's order it is seen that Rule 8D was 5.4 From the perusal of the AO's order it is seen that Rule 8D was applied and disallowance u/s. 14A worked out and ad applied and disallowance u/s. 14A worked out and ad applied and disallowance u/s. 14A worked out and ad-hoc disallowance u/s. 14A made by the appellant of Rs.96,913/ disallowance u/s. 14A made by the appellant of Rs.96,913/ disallowance u/s. 14A made by the appellant of Rs.96,913/- was rejected on the ground that all rejected on the ground that all relevant direct and indirect expenses relevant direct and indirect expenses were not considered. As per judicial precedents laid down, the AO were not considered. As per judicial precedents laid down, the AO were not considered. As per judicial precedents laid down, the AO has to record his satisfaction regarding the incorrectness of the suo has to record his satisfaction regarding the incorrectness of the suo has to record his satisfaction regarding the incorrectness of the suo- moto disallowance made by the appellant on the basis of moto disallowance made by the appellant on the basis of moto disallowance made by the appellant on the basis of examination of the accoun examination of the accounts of the appellant. However, there is no ts of the appellant. However, there is no such recordings of satisfaction by the AO. such recordings of satisfaction by the AO.” 8.1 Further, in para 5.5, the Ld. CIT(A) has directed the Assessing Further, in para 5.5, the Ld. CIT(A) has directed the Assessing Further, in para 5.5, the Ld. CIT(A) has directed the Assessing Officer to recompute 14A disallowance by excluding the shares held Officer to recompute 14A disallowance by excluding the sha Officer to recompute 14A disallowance by excluding the sha as stock in trade. The finding of t as stock in trade. The finding of the Ld. CIT(A) is reproduced as he Ld. CIT(A) is reproduced as under:
“5.5 The appellant has submitted case laws in the case of the group The appellant has submitted case laws in the case of the group The appellant has submitted case laws in the case of the group companies of the appellant where similar issue was adjudicated by companies of the appellant where similar issue was adjudicated by companies of the appellant where similar issue was adjudicated by Hon'ble Mumbai Tribunal. The same are not repeated here as the Hon'ble Mumbai Tribunal. The same are not repeated here as the Hon'ble Mumbai Tribunal. The same are not repeated here as the same are already ment same are already mentioned in the preceding paras of the ioned in the preceding paras of the appellant's submissions. Looking into the totality of the facts put appellant's submissions. Looking into the totality of the facts put appellant's submissions. Looking into the totality of the facts put forth and the judicial precedents cited, the AO is directed to forth and the judicial precedents cited, the AO is directed to forth and the judicial precedents cited, the AO is directed to recompute the 14A disallowance by excluding the shares held as recompute the 14A disallowance by excluding the shares held as recompute the 14A disallowance by excluding the shares held as stock-in-trade.” ” 8.2 As far as provisions of the Act are concerned before invoking r as provisions of the Act are concerned before invoking r as provisions of the Act are concerned before invoking Rule 8D of the Rules, the Assessing Officer is required to record Rule 8D of the Rules, the Assessing Officer is required to record Rule 8D of the Rules, the Assessing Officer is required to record dissatisfaction on the correctness of the claim of the assessee and dissatisfaction on the correctness of the claim of the assessee and dissatisfaction on the correctness of the claim of the assessee and thereafter only he can proceed for applying Rule 8D thereafter only he can proceed for applying Rule 8D. . Further, as far as ground No. 3 by the Revenue is concerned, the Ld. CIT(A) has as ground No. 3 by the Revenue is concerned, the Ld. CIT(A) has as ground No. 3 by the Revenue is concerned, the Ld. CIT(A) has followed the binding precedent of the Hon’ble Supreme Court followed the binding precedent of the Hon’ble Supreme Court followed the binding precedent of the Hon’ble Supreme Court regarding the requirement of recording dissatisfaction on the regarding the requirement of recording dissatisfaction on the regarding the requirement of recording dissatisfaction on the correctness of the claim of the assessee. The Ld. Counsel for the correctness of the claim of the assessee. The Ld. Counsel for the correctness of the claim of the assessee. The Ld. Counsel for the assessee has referred to the decision of the Hon’ble Jurisdictional assessee has referred to the decision of the Hon’ble Jurisdictional assessee has referred to the decision of the Hon’ble Jurisdictional
Everest Securities And Finance Ltd. Everest Securities And Finance Ltd. 6 & CO No. 8/M/2024 ITA No. 2818/M/2023 & CO No. 8/M/2024 High Court in the case of Pr. CIT v. M/s Bombay Stock Exchange High Court in the case of Pr. CIT v. M/s Bombay Stock Exchange High Court in the case of Pr. CIT v. M/s Bombay Stock Exchange Ltd. in Income Tax Appeal No. 1017 of 2017. The relevant appeal of Ltd. in Income Tax Appeal No. 1017 of 2017. The relevant appeal of Ltd. in Income Tax Appeal No. 1017 of 2017. The relevant appeal of the same is reproduced as under: the same is reproduced as under:
“9. We note that it is ev We note that it is evident from the extracted part of the ident from the extracted part of the assessment order referred to hereinabove that the Assessing Officer assessment order referred to hereinabove that the Assessing Officer assessment order referred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the has come to the conclusion that the disallowance claimed by the has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule 8D of the said Rules. It is Respondent was not consistent with Rule 8D of the said Rules. It is Respondent was not consistent with Rule 8D of the said Rules. It is only in view of the only in view of the disallowances not being worked out as per Rule disallowances not being worked out as per Rule 8D of the Rules, that the Assessing Officer is not satisfied with the 8D of the Rules, that the Assessing Officer is not satisfied with the 8D of the Rules, that the Assessing Officer is not satisfied with the disallowance offered by the Respondent. This, to our mind, is putting disallowance offered by the Respondent. This, to our mind, is putting disallowance offered by the Respondent. This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a the cart before the horse. The Assessing Officer must first record a the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the assessee, he is conclusion that having regard to the accounts of the assessee, he is conclusion that having regard to the accounts of the assessee, he is not satisfied with the disallowance offered by the Respondent in not satisfied with the disallowance offered by the Respondent in not satisfied with the disallowance offered by the Respondent in terms of section 14(2) of the Act. It only on being dissatisfied with the section 14(2) of the Act. It only on being dissatisfied with the section 14(2) of the Act. It only on being dissatisfied with the above, does Rule 8D of the Rules can be invoked above, does Rule 8D of the Rules can be invoked to compute the to compute the disallowance.” 8.3 In the case, the Ld. CIT(A) has given a clear finding that no the Ld. CIT(A) has given a clear finding that no the Ld. CIT(A) has given a clear finding that no such dissatisfaction was recorded was recorded by the AO. This finding of the Ld. by the AO. This finding of the Ld. CIT(A) has not been challenged by the Revenue in its grounds and CIT(A) has not been challenged by the Revenue in its gr CIT(A) has not been challenged by the Revenue in its gr therefore, it has beco therefore, it has become final that no dissatisfaction satisfaction was recorded by the Assessing Officer for invoking Rule 8D, which being a Officer for invoking Rule 8D, which being a Officer for invoking Rule 8D, which being a prerequisite for invoking rule 8D by the AO, therefore, further prerequisite for invoking rule 8D by the AO, therefore, further prerequisite for invoking rule 8D by the AO, therefore, further disallowance invoking rule 8D could be sustained. In such a disallowance invoking rule 8D could be sustained. disallowance invoking rule 8D could be sustained. situation, issuing further direction by the Ld. CIT(A) for re further direction by the Ld. CIT(A) for re- further direction by the Ld. CIT(A) for re computing disallowance computing disallowance u/s 14A by excluding shares held as stock by excluding shares held as stock in trade is not justified. In the grounds, Revenue has agitated that in trade is not justified. In the grounds, Revenue has agitated that in trade is not justified. In the grounds, Revenue has agitated that the disallowance could be made if no exempt income is earned by the disallowance could be made if no exempt income is earned by the disallowance could be made if no exempt income is earned by the assessee. The said ground is not relevant as CIT(A) has held he said ground is not relevant as CIT(A) has held he said ground is not relevant as CIT(A) has held that no dissatisfaction was recorded by the AO, hence same is that no dissatisfaction was recorded by the AO, hence same is that no dissatisfaction was recorded by the AO, hence same is dismissed as infructuous. dismissed as infructuous.
Everest Securities And Finance Ltd. Everest Securities And Finance Ltd. 7 & CO No. 8/M/2024 ITA No. 2818/M/2023 & CO No. 8/M/2024 8.4 In view of the above discussion, the grounds raised by the In view of the above discussion, the grounds raised by the In view of the above discussion, the grounds raised by the Revenue are dismissed and Revenue are dismissed and grounds of the cross-objecti objection of the assessee are allowed. assessee are allowed.
In the result the appeal of the Revenue is dismissed , whereas 9. In the result the appeal of the Revenue is dismissed , whereas 9. In the result the appeal of the Revenue is dismissed , whereas cross objection of the assessee cross objection of the assessee is allowed.