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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
आदेश / O R D E R PER C.N.PRASAD (JM) This appeal is filed by the Assessee against the order of the Ld. CIT (Appeals)-14, Mumbai dated 09.09.2014 for the assessment year 2010-11 arising out of assessment order passed u/s 143(3) of the Act.
The only issue in the appeal of the Assessee is regarding disallowance made u/s 14A of the Act.
(A.Y.2010-11) M/s Auchtel Products Ltd.
The Ld. Counsel for the Assessee at the outset submits that identical issue arose in Assessee’s own case for the assessment years 2003-04, 2007-08 and 2008-09 and the Coordinate Bench in ITA 3185/Mum/2011 dated 30.04.2012 restored the matter for the assessment year 2008-09 to the Assessing Officer with certain directions. The Ld. Counsel submits that similar directions may be given for the assessment year under consideration to which the Ld.DR has no serious objection.
We have both sides and perused the orders of the Coordinate Bench in Assessee’s own case for the assessment year 2008-09 and we find that the Coordinate Bench restored the issue of disallowance made u/s 14A of the Act to the file of the Assessing Officer with certain directions observing as under : “11. The only issue raised by the assessee in its appeal is against the confirmation of disallowance of Rs. 12,81,496/- made by the AO u/s.14A as per Rule 8D. 12. Briefly stated, the facts of the case are that in this year also the assessee earned certain exempt income without offering any amount disallowable u/s.14A. On being called upon to substantiate its claim in this regard, : "the assessee submitted that it has not incurred any expenditure in earning dividend income". The AO computed disallowance u/s.14A as per Rule 8D which amount was determined at Rs. 12,81,496/-. The assessee submitted before the Id. CIT(A) that there was no nexus whatsoever of the interest bearing deposits with the investments made by the company from which such exempt income was earned. Relying on certain judgments and certain orders passed by the Tribunal, the assessee contended that in order to invoke the provisions of sec. 14A, it was required to be determined first whether any expenditure was actually incurred to earn such exempt income. Not convinced with the assessee's submission, the Id. CIT(A) observed that the Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. has held that Rule 8D is applicable w.e.f. assessment year 2008-09. He, therefore, upheld the action of the AO in computing disallowance as per Rule 8D. 13. Having heard the rival submissions and perused the relevant material on record, there is no dispute on the fact that Rule 81 is (A.Y.2010-11) M/s Auchtel Products Ltd.
applicable w.e.f. assessment year 2008-09. Presently, we are dealing with the assessment year 2008-09 and resultantly Rule 8D is to be applied. However, it has been contended by the Id. AR that sufficient material was placed before the AO in support of its claim of not having incurred any interest expenditure in respect of the exempt dividend income. From the assessment order, it can be seen that the AO has categorically recorded "Assessee's submission is kept on record". There is no discussion whatsoever on the submissions so made on behalf of the assessee in this regard.
At this juncture, it will be relevant to note that section 14A provides that 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'. So the reference to the amount disallowable is the expenditure incurred by the assessee in relation to exempt income. It is relevant to note down the provisions of sub- sections (2) and (3) of section 14A which have been inserted w.e.f. assessment year 2007-08 reading as under: "(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 prescribed, 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 firm part of the total income under this Act."
A bare perusal of the above provisions indicates that the AU shall determine the amount disallowable as per Rule 81), if he, "is not satisfied with the correctness of the claim of the assessee" in respect of such expenditure in relation to exempt income. Even if the assessee claims that no expenditure was incurred in respect of exempt income, the AO is supposed to follow the mandate of Rule 8D if he is not satisfied with the correctness of the assessee's claim. To put it simply, the further disallowance u/s. 14A is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D. Such satisfaction can
(A.Y.2010-11) M/s Auchtel Products Ltd. be reached and recorded only when the claim of the assessee is verified. If the assessee proves before the AU that it incurred a particular expenditure in respect of earning the exempt income and the AU gets satisfied, then there is no requirement to still proceed with the computation of amount disallowable as per Rule 8D. From the assessment order, it is observed that the AU simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule 8D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course adopted by the AO. The correct sequence, in our considered opinion, for making any disallowance u/s.14A is to, firstly, examine the assessee's claim of having incurred some expenditure or no expenditure in relation to exempt income. If the AU gets satisfied with the same, then there is no need to compute disallowance as per Rule 81). It is only when the AU is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of Rule 81) will operate. In the instant case, the authorities below have directly gone to the second stage of computing disallowance u/s. 14A as per Rule 81) without rendering any opinion on the correctness or otherwise of the assessee's claim in this regard. We, therefore, set aside the impugned order on this issue and restore the matter to the file of AU to re-compute disallowance, if any, in accordance with our above observations after duly examining the assessee's claim in this regard.”
We are of the considered view that the said directions have to be followed in the current assessment year i.e. 2010-11 also and decide the issue accordingly. Thus, we restore this issue to the file of the Assessing Officer who shall follow the directions given by the Coordinate Bench for the assessment year 2008-09 and decide the issue in appeal before us for the assessment year 2010-11 on the same lines. Thus we restore this issue to the file of the Assessing Officer who shall pass orders afresh after giving adequate opportunity of being heard to the Assessee.
In the result appeal of the Assessee is allowed for statistical purpose.
(A.Y.2010-11) M/s Auchtel Products Ltd.
Order pronounced in the open court on the 4th day of May 2017.