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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Bijehsh Thakkar Prop,Thakker Jt. Commissioner of Income Tax, & Thakker Aayakar Bhavan, New Marine 20th Floor,Nirmal Nariman point Vs. Lines Mumbai-400 021 Mumbai-20 PAN: -AAAPT7758G Appellant .. Respondent .. Shri Sanjiv M. Shah, AR Assessee by Revenue by .. Dr. Suman Ratnam, DR .. Date of hearing 07-02-2017 Date of pronouncement .. 26-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-3, Mumbai, in appeal No. CIT(A)-3/JCIT-11(2)/IT-390/10-11 dated 28-05-2012. The Assessment was framed by JCIT Circle-11(2), Mumbai for the A.Y. 2008- 09 vide order dated 30-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempted income under section 14A read with Rule 8D of the Rules. For this assesse has raised following ground No.1: -
“The learned Commissioner of Income Tax has erred in confirming addition of Rs. 48,30,599/- on account of disallowance u/s 14A read with rule 8D of Income Tax Rules, 1962 without properly considering the facts available on the records. Your Appellant respectfully submits that the learned CIT (Appeals) has not considered the submissions and various judicial decisions submitted during the course of hearing. However, learned
Bijehsh Thakkar Prop,Thakker & Thakker; A.Y:08-09 CIT Appeals without appreciating facts available on the records & the explanation submitted by the Appellant went on disallowing expenses u/s 14A of Rs 48,30,599/- in an arbitrary manner, which may please be deleted.”
Briefly stated facts are that the assessee has earned dividend income of Rs. 1,68,97,184/- and tax free interest on Govt. bonds at Rs. 78,96,050/- and claimed the same as exempt. The assessee voluntarily offered indirect expense at Rs. 1 lac towards disallowance under section 14A reads with Rule 8D(2)(iii) of the Act. But the AO was not in agreement with the assessee and he made further disallowance at Rs. 48,30,599/-. We have gone through the assessment order and noticed that the AO has applied the Rule 8D for making disallowance of indirect expenses at Rs. 0.5% of average investment and for this he observed as under: -
“It is seen that the volume of the transaction in respect of the investment is considerably large. For that purpose, the assessee ought to have to take help of the same assistants or employees. Further he has to incur certain expenditure on telephone, conveyance, stationery internet etc. These expenses not been claimed in the personal profit & loss a/c. or the personal capital account of the assessee. Since the assessee has claimed such expenses in the P&L a/c. of the professional activities, I am not satisfied with the correctness of the assessee's claim. It is also supported by the assessee's offer of disallowance of some amount. Hence by applying the provisions of Rule 8-D, I compute the disallowance as under”
Aggrieved assessee preferred the appeal before CIT(A).
The CIT(A) noted that the assessee has debited expenditure on account of Bank charges, film promotion expenses, electricity expenses, printing and stationary expenses, staff welfare, salaries, office rent, conveyance, subscription to periodicals, repairs and maintenance etc. But has not offered any expenses relatable to exempt income except of Rs. 1 lac. The CIT(A) finally discussing
Bijehsh Thakkar Prop,Thakker & Thakker; A.Y:08-09 the formula under Rule 8D (2) (iii) being average value of investment at 0.5% confirmed the disallowance by observing the following relevant as under: -
“……….This is the method and basis for arriving at the figure of 0.57o of the average value of the investment. It is seen that the AO has made disallowance at Rs. 48,30,599/- by faking 0.5% of the aggregating of investment of Rs. 96,61,19,769/- as shown in balance sheet as on 31-3-2008. Therefore, the disallowance made at Rs. 4830,599/- as per Rule 8D of Income-Tax Rules 1962 is appear for correct and valid hence same are sustained. This ground of appeal is therefore dismissed.”
Aggrieved now, assessee is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the Case. We find that neither the AO nor CIT(A) has recorded any satisfaction in applying Rule 8D (2) (iii) despite the fact that the assessee himself offered a sum of Rs. 1 lac towards disallowance under section 14A of the Act. There is no basis given by AO while making this disallowance or how he is not satisfied with the correctness of the Account of the assessee. We find that Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom) has emphasized on satisfaction as under: -
“……….What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the Page 3 of 5
Bijehsh Thakkar Prop,Thakker & Thakker; A.Y:08-09 method prescribed by the Rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the Rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act………”
From the above judgment of the Hon’ble Bombay High Court and the facts of the case that the AO has not recorded satisfaction qua the incorrectness of the accounts of the assessee, we delete the disallowance and allow the appeal of the assessee.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition of undisclosed professional income amounting to Rs. 90,000/-. Page 4 of 5
Bijehsh Thakkar Prop,Thakker & Thakker; A.Y:08-09 8. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. The AO noted that as per AIR information the assessee has reconciled the entire AIR statement except 3 entries of Rs. 30,000/- each pertaining to fees receipt from M/s Gagrats. Accordingly, a sum of Rs. 90,000/- was added back to the total income of the assessee. The CIT(A) also confirmed the action of the AO in the absence of any evidence contrary to AIR information. Now, before us the learned Counsel for the assessee made a statement that before AO as well as before CIT(A) it was submitted that the entries in respect of M/s Gagrats did not match as the assessee did not have any professional relationship with that concern and there cannot be any fee received from them. The learned Counsel sated that how negative can be proved. Neither the AO nor CIT(A) brought on record how this professional fee depicted in AIR information belongs to assessee despite objection raised before AO as well as CIT(A). Once it is denied that the assessee has no professional relationship with M/s Gagrats, hence, there is no question of professional fee as per AIR information, which was never verified by the AO. Accordingly, we have no hesitation in deleting the same. The orders of the lower authorities on this issue are reversed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 26-04-2017.