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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI RAJENDRA, HON’BLE & SHRI C.N. PRASAD, HON’BLE
PER C.N. PRASAD, JUDICIAL MEMBER
These two appeals filed by the assessee against the separate orders of the ld. CIT(A)-7, Mumbai, dated 25/11/2013 & 29/09/2014 for the Assessment Years 2010-11 & 2011-12 respectively.
Brief facts of the case are that the assessments were completed by the Assessing Officer under section 143(3) of the Act. While completing the assessments, the Assessing Officer disallowed Rs.16,05,051/- and Rs. 16,67,50/- under section 14A read with Rule 8D for the Assessment Years 2010-11 & 2011-12 respectively. However, since the assessee itself suo-motu disallowed Rs.6,05,051/- and Rs.6,67,551/- in both these assessment years, he restricted the disallowance to Rs. 10 Lac. each for both the assessment years while
2 & 7351/MUM/2014 working out the disallowance under section 14A read with Rule 8D. The Assessing Officer while working out the disallowance considered the investment made in partnership firm, which the assessee has not considered while working out the disallowance of 0.5% of average investment. The ld. CIT(A) sustained the disallowance made by the Assessing Officer.
The Authorized Representative of the assessee submitted that assessee has calculated the expenditure attributable for earning dividend income by taking total investments except the capital introduced in the partnership firm, where the assessee is having only 5% share of profit. The counsel for assessee further submitted that the Assessing Officer has not recorded any satisfaction with regard to claim of the assessee in respect of the disallowance made suo-motu by the assessee and in the absence of any dissatisfaction recorded by the Assessing Officer with regard to the claim of the assessee, there is no justification in invoking the provisions of section 14A(2) read with Rule 8D. The Authorized Representative of the assessee by placing reliance on the decision of the coordinate Bench of this Tribunal in the case of Radha Madhav Investments Ltd. in dated 17/04/2015 submits that in the absence of recording of satisfaction, the provisions of Rule 8D cannot be invoked.
Departmental Representative supported the orders of the authorities below.
We have heard rival submissions and perused the orders of the authorities below. On perusal of the assessment orders, we find that there is no dissatisfaction recorded by the Assessing Officer with regard to suo-motu disallowance made by the assessee. The Assessing Officer has simply calculated the disallowance by applying 0.5% on total average investments including the capital investment by the assessee in 3 & 7351/MUM/2014 the firm without rejecting the contentions of the assessee that the suo-motu disallowance of Rs. 6,05,051/- and Rs. 6,67,551/- made by the assessee are not reasonable at all. In the case of Radha Madhav Investments Ltd. (supra), more or less on identical situation, the Tribunal has considered non-recording of dissatisfaction by the Assessing Officer as under:-
“2. The brief facts of the case are that, assessee company is engaged in the business of trading of various items, investment and financing. From the computation of income the Assessing Officer noted that assessee has claimed following incomes as exempt from tax:- i) Dividend income of Rs.31,86,93,627/- ii) Share of profit from partnership firm Rs.13,04,48,840/-. In response to the show cause notice as to why disallowance should not be made as per Rule 80, the assessee submitted that it has already allocated an amount of Rs.1,65,43,645/- for the purpose of disallowance u/s 14A which has been made as per Rule 80 only. The working of such disallowance was already enclosed with Tax Audit Report in From No. 3CD. However, the Assessing Officer held that the same is strictly not in accordance with the Rule 80 and worked out the disallowance of Rs.3,55,96,346/- as per the working given at the page 4 of the assessment order.
3. Before the Ld. CIT(A), the assessee submitted that, so far as investment made in firm is concerned, the same cannot be taken in the value of investment as per clause (iii) of Rule 80. Further share in the profit of the firm is allocated amongst the partners only when the firm has paid the taxes. Thus, the partner has already suffered tax paid by the firm. Besides this it was also pointed out that the assessee has incurred business expenses of 8.60 crores which were mostly incurred for the business purpose and there are no expenses directly related to earning of the dividend income. Accordingly, no disallowance over and above should be made. However, the Ld. CIT(A) held that disallowance has to be made strictly within Rule 80 and confirmed the disallowance without considering the assessee's submission. This is evident from the following finding given by the Ld. CIT(A). ''I have considered the AOs order as well as appellant ARs submissions. Having considered both, I find that the AO has applied the jurisdictional High Court decision I the 4 & 7351/MUM/2014 case of M/s. Godrej & Boyce Mfg. Co. Ltd. while making the disallowance. As the jurisdictional High Court has held that Rule 80 is applicable from A. Y. 2008-09 onward. It is also the fad that the appellant company has got substantial exempt income which has been mentioned by the AO in para 5.1 of the order. I view of the same and taking note of provisions of section 14A of the Act;. I am of the considered view that the disallowance made by the AO is completely justified and accordingly confirmed. In view of the same, the appellants this ground of appeal
is dismissed. "
4. Before us, learned counsel Shri Vijai Mehta, submitted that assessee has already offered a huge disallowance of Rs.l,65,43,645/- which was as per Rule 80 only. The disallowance was made after taking the average investments made in the shares, whereas, the Assessing Officer has included the investment made by way of capital in the partnership firm. The investment in the capital of the firm was coming from earlier years. Once the assessee has itself attributed disallowable expenses, the Assessing Officer without recording his satisfication or being satisfied with the correctness of the claim of the assessee cannot proceed to make further disallowance under Rule 8D. IT is more so, in this case when the assessee has duly placed before the Assessing Officer, the nature of expenses as appearing in schedule 12 & 13 of P & L account which will go to show that most of the expenses were incurred for the business carried out by the assessee. Thus, without rejecting the claim of the assessee and without recording satisfaction, the Assessing Officer cannot make further disallowance. In support of his contention he relied upon various cases laws. He also filed analysis of the expenditures debited to the P&L Account, in order to show that major expenses have been incurred for assessee's other business.
5. On the other hand, Ld. DR strongly relied upon the order of the Ld. CIT(A).
6. We have heard the rival submissions and also perused the relevant material placed on record. As discussed above, the assessee has already offered disallowance of an amount of Rs.1,65,43,645/- for allocating the indirect expenses under Rule 8D. Once, the assessee has attributed the expenses for the purpose of disallowance, then it is incumbent upon the Assessing Officer to examine the correctness of such a claim of expenditure and if, having regard to the accounts of the assessee he is not satisfied to such correctness of the claim, then he can proceed to determine the amount of expenditure incurred which 5 & 7351/MUM/2014 can be said to be attributable for the earning of exempt income. This is the mandate of law under section 14(2). In other words, once he has fulfilled the conditions laid down in section 14(2) then, only he can proceed to vary the disallowance u/s 14A. Here in this case the AO has failed to fulfilthe requirement of section 14(2), and without being satisfied about the correctness of the claim has proceeded to disallow, which is not the correct approach.”
6. Therefore, in the case on hand also, the Assessing Officer has not recorded any dissatisfaction on the correctness of the claim made by the assessee. The Assessing Officer should not have invoked the provisions of Rule 8D without recording the satisfaction on the correctness of the claim made by the assessee with reference to books of account that the expenses disallowed by the assessee are not reasonable. Thus, we delete the disallowance made by the Assessing Officer under section 14A read with Rule 8D.
In the result, both the appeals of the assessee are allowed. Order Pronounced in the open Court on 17th October, 2016