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Before: SHRI S. V. MEHROTRA & SHRI CHANDRA MOHAN GARG
Appellant by Sh. Sajeve Deora, FCA Respondent by Ms. Rakhi Bimal, Sr. DR Date of Hearing 11.05.2016 Date of Pronouncement 30.05.2016 ORDER PER CHANDRA MOHAN GARG, JM
This appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-XVIII, New Delhi dated 19/4/2013 passed in First Appeal No. 389/2011-12 for Assessment Year 2009-10.
In this appeal, the assessee has raised as many as six grounds but except Ground No 2.1 other grounds are argumentative and supportive to the main Ground No. 2.1 which reads as under:-
2.1. That within the facts and circumstances of the case and law on the point, the Ld.CIT(A) has erred in disallowing the expenses of Rs. 2,50,674.00/- u/s 14A with w.r.t Rule 8D of the Income tax Act, 1961 (Act) without appreciating that the Appellant had earned dividend on investment made in 1996 and further dividend income was credited directly to the bank account without any manual intervention and no expenses were incurred by the Appellant to earn such dividend income and that for such reason no disallowance u/s 14A of the Act is warranted.
We have heard argument of both the sides and carefully perused the material available on record before us. The Ld. Assessee’s Representative (AR) drawn our attention towards relevant operative Para 4.1 of the First Appellate Order and submitted that the CIT(A) noted the claim of the assessee that no dividend income was received during the relevant assessment year, therefore, no disallowance was called for. The Ld. AR further pointed out that, however, the Assessing Officer calculates disallowance of Rs. 14,86,131/- but since the total expenditure claimed by the assessee as per P & L Account was Rs. 2,50,674/- , the disallowance was restricted to this extent only. The Ld. AR submitted that as per Section 14A (2) of the Act before making any disallowance under this provision the Assessing Officer is duty bound to record that having regard to the accounts of the assessee he 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 total income under this Act. The Ld. AR further drawn our attention towards entire assessment order para 1 to 3.1 and submitted that no satisfaction as required by the said mandate of Sub Section 2 of Section 14A of the Act has been recorded by the A.O. Therefore, no disallowance can be made. The Ld. AR also pointed out that the CIT(A) ignored this important fact that the assessee made suo moto disallowance of Rs. 7,20,/- as per Rule 8D (ii) as per working furnished by the assessee during the assessment proceedings but the A.O has not controverted this claim of the assessee by recording his dissatisfaction about the correctness of the suo moto disallowance of the assessee.
4. The Ld. Counsel drawn our attention towards recent judgment of Hon’ble Jurisdiction High Court of Delhi dated 24/9/2015 in case of CIT(A) Vs. I.P Estate Support Services India Pvt. Ltd passed in and submitted that the Hon’ble Jurisdictional High Court after considering its earlier decision in the case of Maxcopp Investment (P) Ltd. vs. CIT (2012) 347 ITR 272 (Del), categorically held that the Court disapproved of A.O invoking Section 14A Rule 8D (2) of the I.T Rules 1962 without recording his satisfaction and noted that the recording of satisfaction as to why “ the voluntary disallowance made by the assessee was unreasonable and unsatisfactory” which is a mandatory requirement of law. The Ld. Counsel also pointed out when the CIT(A) himself noted that no dividend was received during the relevant period then no disallowance could be made as per decision of Hon’ble High Court of Delhi in the case of CIT Vs. Holcim India Pvt. Ltd dated 5/9/2014 in ITA No. 486/2014 and 299/2014. The Ld. AR also has drawn our attention towards recent judgment of Hon’ble Delhi High Court in case of Chemnivest Ltd. Vs. CIT reported as 378 ITR 33 (Delhi) and contended that the order of the ITAT Delhi in the case of Chemnivest Ltd Vs. ITO reported as 124 TTJ 577, which has been relied by the authorities below, has been reversed by the jurisdictional High Court wherein it was held that no exempt income was earned by the assessee in the relevant assessment year and since the genuineness of the expenditure incurred by the assessee was not in doubt, then no disallowance can be made u/s 14A of the Act.
On careful consideration and submission of both the side, in the present case on vigilant perusal of the relevant operative part of the assessment order, it is amply clear that the Assessing Officer has not accorded any satisfaction alleging the correctness of the claim of expenditure or suo moto disallowance made by the A.O. In this situation as per judgment of Hon’ble High Court of Delhi in case of CIT Vs. I.P Support Services India Pvt. Ltd(Supra) the A.O no empowered to invoke Section 14A read with Rule 8D of the I.T Rules 1962. The relevant operative part of this judgment of Hon’ble Jurisdictional High Court reads as under:
8. Having heard the learned counsel for the parties, the Court finds that the AO has indeed proceeded on the erroneous premise that the invocation of Section 14A is automatic and comes into operation as soon as the dividend income is claimed exempt. In Maxopp Investment (P) Ltd. (supra) this Court held: “30. Sub-section (2) of section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only 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 the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred http://www.itatonline.org ITA 283/2014 Page 5 of 6 in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub- section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same.” (emphasis supplied) 9. In CIT v. Taikisha Engineering India Ltd. 370 ITR 338 (Del.), in similar circumstances, the Court disapproved of an AO invoking Section 14A read with Rule 8D (2) of the Rules without recording his satisfaction and noted that the recording of satisfaction as to why “the voluntary disallowance made by the assessee was unreasonable and unsatisfactory” is a mandatory requirement of the law.”
In view of above, the disallowance made by the Assessing Officer without recording any satisfaction as required by the mandate of Sub Section (2) of Sub Section 14 A of the Act cannot be held as sustainable.
The next question for adjudication before us is that whether any disallowance can be made by the Assessing Officer in a situation when the assessee claimed that no exempt dividend income was received during the period under consideration, therefore, no disallowance u/s 14A of the Act was called for. In this case in hand neither the A.O nor the CIT(A) has controverted this fact that the assessee has not earned and claimed any exempt dividend income during the year. At this juncture, it would be relevant appropriate to consider the ratio of the recent decision of Hon'ble High Court of Delhi in the case of Chemnivest Ltd Vs. CIT(A) (Supra) wherein their lordships speaking for the jurisdictional High Court held that when no exempted income was earned by the assessee in the relevant assessment year, and since the genuineness of the expenditure incurred by the assessee in not in doubt then no disallowance could be made u/s 14A of the Act.
Respectfully, following the dicta laid down by the Hon'ble High Court, we are inclined to hold that disallowance by the Assessing Officer and upheld by the CIT(A) is not sustainable as per provisions of the Act and ratio of the decision by the Hon'ble High Court of Delhi in case of Chemnivest Ltd vs. CIT (supra). Thus, we direct the A.O to delete the same. Accordingly, main ground of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order Pounced in the Open Court on 30/05/2016.