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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Hon’ble Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
Per Waseem Ahmed, AM
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-2, Kolkata dated 25.07.2016. Assessment was framed by I.T.O., Ward-5(2), Kolkata u/s.143(3) of the Income tax Act, 1961 (hereinafter referred to as ‘the Act ‘) vide his order dated 18.09.2014 for assessment year 2012-13. Shri Girish Sharma, Ld. Authorized Representative appeared on behalf of assessee and Shri H.R. Singh, Ld. Departmental Representative represented on behalf of Revenue.
Scrips Dealers Pvt.Ltd. A.Y.2012-13 2
The only issue raised by the assessee in this appeal is that the ld. CIT(A) erred in confirming the order of AO by sustaining disallowance of Rs.5,95,004/- under the provisions of Section 14A of the Act.
The facts in brief are that the assessee is a private limited company and also registered as Non-Banking Financial Corporation with Reserve Bank of India. The assessee is engaged in the business of derivatives, share trading, jute, land, investments in mutual funds and granting of loans and advances. The assessee, in the year under consideration, has earned dividend income of Rs.39,54,175/- which was claimed as exempted from tax u/s 10(34) of the Act. In connection with the dividend income the assessee at its own has offered an expense of Rs.33,830.00 u/s 14A of the Act. The assessee also submitted that the disallowance offered u/s 14A of the Act is almost 5.38% of the total expenditure. The assessee in support of its claim has also filed the details of expenses which are available at page 2 of the assessment order. However, the AO expressed his dissatisfaction about the amount offered by the assessee and invoked the provision of Rule 8D r.w.s. 14A of the Act and made the disallowance as under:- a) Direct expenses : Rs.22,646.00 b) Interest expenses : Rs. NIL c) Administrative expenses : Rs.6,10,603.00* * Administrative expenses were worked out at Rs.10,69,405.00 but it was limited to the actual expenditure claimed by the assessee. The actual expenses claimed by the assessee including direct expenses of 22,646.00 is Rs. 6,28,834.00 only Accordingly, the AO disallowed the expenses of Rs.595004.00 (628834 – 33830) and added to the total income of the assessee.
Aggrieved, the assessee preferred an appeal to the ld. CIT(A). The assessee before the ld.CIT(A) submitted that the AO failed to bring any defect in Scrips Dealers Pvt.Ltd. A.Y.2012-13 3 the computation of disallowance made by the assessee u/s 14A of the Act but rejected the same without adducing any valid reasons. The assessee further submitted that the basis for disallowance made u/s 14A of the Act was accepted by the income tax authorities in the earlier years. The details of which are placed at page 4 of the CIT(A)’s order. However the ld. CIT(A) disregarded the contentions of the assessee by observing as under :- “I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has already discussed the issue in detail while passing the order. Keeping in view of the finding of the AO given in assessment order, the order of the AO is upheld and this ground of appeal is dismissed.”
Being aggrieved by the order of CIT(A) the assessee is in second appeal before us on the following grounds of appeal : “1.That on the facts and circumstances of the case Ld. Commissioner (Appeals) erred in disallowing Rs 5,95,004/- as per Rule 8D read with Section 14A of the Income Tax Act,1961. 2.That the Appellant craves leave to add, alter, amend, delete, substitute any of the grounds and / or take additional ground /s before or at any time of hearing of this appeal.”
The ld. AR before us filed a paper book which is running from pages 1 to 73 and reiterated the same submissions as made before the ld. CIT(A). On the other hand the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions and perused the materials available on record. At the outset, we find that the basis adopted by the assessee for making the disallowance has been accepted in assessee’s own case in A.Y.2011-12 order dated 04.11.2016 wherein it was held as under:- “11. In the present case it is noticed that the AO computed the disallowance under Rule 8D(iii) of the Rules on the average value of investment of Rs.21,17,26,456/- at ½% taking into consideration the total investments from Scrips Dealers Pvt.Ltd. A.Y.2012-13 4
balance sheets as standing on 31.03.2010 & 31.03.2011 at Rs.19,30,62,446.72 and Rs.23,03,90,465.58. It is also noticed from the order of AO at page no-2, the assessee earned dividend income and offered disallowance on its own to an extent of Rs.5,29,464/- and that under explanation submitted a break up off the expenses incurred by way written submission dt:06-05-2013. The AO did not accept the working of break up of expenses and without assigning any reason i.e without examining the accounts of the Assessee rejected the working of the Assessee and thereby he invoked the Rule 8D and computed the expenditure to an extent of Rs.10,58,632/-. In our view, without examining the correctness of the claim of asseesee and applying Rule 8D thereon on mere presumption that the computation of expenses as submitted by the asseesee is unsatisfactory to some extent is not permissible under law. In this regard we may refer to the decision of Kolkata Tribunal in the case of DCIT Vs. Ashish Jhunjhunwala in for the AY 2009-10 held that the AO has to record his satisfaction about the correctness of the claim of the assessee and without there being no satisfaction invocation of Rule 8D of the Rules is bad under law. The relevant portion is reproduced herein below:-
“We find from the facts of the above case that the AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked the Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation of exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing the disallowance under Rule 8D of the Rules on presuming the average value of investment at ½ % of the total value. In view of the above and respectfully following the co-ordinate bench decision in the case of J.K Investors (Bombay) Ltd supra, we uphold the order of CIT(A). This appeal of revenue is dismissed.”
It is also brought to our notice that the Hon’ble Jurisdictional High Court of Kolkata has upheld the decision of Kolkata Tribunal in the case of DCIT Vs. Ashish Jhunjhunwala supra .The principle as laid down in the aforementioned case is clearly applicable to the facts of the present case, In view of the same, we hold that the AO did not verify the accounts and claim of the assessee while applying Rule 8D of I.T Rules in computing expenditure thereon is not maintainable, and, therefore, the order of the CIT-A is quashed in this regard and addition made thereon is deleted. Accordingly, the sole ground as raised by the Assessee is allowed.”