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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SMT. DIVA SINGH & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the assessee against the order of ld. CIT(A)XI , New Delhi dated 29.10.2013 for the assessment year 2008-09 on the following grounds : “
1. Under the facts and circumstances of the case, the ld. First appellate authority had grossly erred in affirming the disallowance of Rs.6,90,957/- made by the ld. Assessing authority under the provisions of section 14A read with Rule 8D on account of ½ % of the average value of the investments.
2. Under the facts and circumstances of the case, the disallowance of Rs.6,90,957/- made u/s. 14A read with Rule 8D is grossly injudicious, against the facts of the case and bad at law as the said disallowance has been made in the absence of any specific finding by the ld. AO that the assessee has actually incurred any such expenditure.”
2. The brief facts of the case are that the appellant is engaged in the business of manufacturing and export of readymade garments through her proprietorship concern, M/s. Ascent Creations. The appellant filed its return of income on 30.09.2008 declaring total income of Rs.48,16,958/-. The return of income also included dividend income of Rs.22,94,142/- which was claimed as exempt u/s. 10 of the I.T. Act, 1961. The case was selected for scrutiny and statutory notices were issued. During the course of scrutiny proceedings, the Assessing Officer noted that the appellant has claimed exempt income on account of dividend of Rs.22,94,142/-. The AO also noted that total investment was made during the year of Rs.5,36,52,154/- in mutual funds, as gathered through AIR information. The total business turnover was shown during the year at Rs.5,00,55,324/-. The assessee herself disallowed expenditure of Rs.2,20,339/- regarding exempted income on investments made in mutual funds. The ld. Assessing Officer, however, calculated disallowance u/s. 14A read with Rule 8D of Rs.6,90,957/-. Aggrieved by the order of the Assessing Officer, the assessee appealed before the first appellate authority, who confirmed the order of the Assessing Officer. Against this order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. AR of the assessee vehemently contended that the order of the Assessing Officer is erroneous and against the law. There was no satisfaction recorded by the Assessing Officer before making disallowance u/s. 14A read with Rule 8D over and above the disallowance made by the assessee herself. The provisions of section 14A read as under : Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (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 prescribed19, if 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 expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.
The ld. AR further objected that the finding of the Assessing Officer is factually incorrect, as the assessee company has made investment of only Rs.70,00,000/- in mutual funds during the year under consideration as against the investment of Rs.5,36,52,124/- alleged by the ld. Assessing Officer. He further submitted that the ld. CIT(A) was also not justified in confirming the disallowance u/s. 14A of the Act, as specific finding for incurring of expenditure is a must and disallowance under the said section cannot be made on presumption. However, no such specific findings have been recorded either by the Assessing Officer or by ld. CIT(A) to support the disallowance over and above that made by appellant herself. Therefore, the disallowance is unwarranted. In support, reliance is placed on the following judicial precedents : (i). M/s. Taikisha Engineering India Ltd. vs. CIT, 54 taxmann.com 109(Delhi). (ii). Maxopp Investments Ltd. vs. CIT, 15 Taxmann.com 390 (Delhi). (iii). Joint Investments (P) Ltd. vs. CIT, 59 Taxmann.com 295 (Delhi) (iv). Kalyani Steel Ltd. vs. ACIT (ITA No. 1733/PN/2012-ITAT Pune)
The ld. DR, on the other hand, relied on the orders of the authorities below and submitted that the ld. Assessing Officer was satisfied as to the disallowance u/s. 14A and has recorded satisfaction as required by the said section which is clear from para 6 of the assessment order.
After hearing both the parties and perusing the material available on record, we find that there is a vast difference between the figure of total investment in mutual funds made during the year under consideration as declared by the assessee and as considered by the Assessing Officer. The assessee is declaring investment of Rs.70,00,000/- in the mutual funds during the year whereas the AO has gathered through AIR information that the assessee had made investment in mutual funds during the year to the tune of Rs.5,36,52,154/-. The ld. AR has also relied on the decision of coordinate Bench of ITAT, Kolkata in the case of REI Agro Ltd. vs. DCIT (2013) 35 taxmann.com 404 (Kolkata-Trib.), wherein it has been observed as under : “8.1. Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D.The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee’s appeal, is restored to the file of the AO for re- computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.”
In the instant case, since there is contradiction in the figures of investment taken by the AO on the basis of AIR information and that declared by the assessee during the year under consideration, in our opinion before deciding the issue of disallowance u/s. 14A, it is necessary to verify as to what was the actual investment during the disputed year in the mutual funds, the income earned on which does not form part of the total income of the assessee. In view of these facts, we deem it expedient in the interest of justice to restore this issue to the file of AO who shall make proper examination/enquiry as to the actual investment in mutual funds during the year and shall accordingly decide the issue in view of the decision of Kolkata Bench of Tribunal cited above. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, the appeal of the assessee deserves to be allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 12.08.2016.