ACIT CIR 4(2), MUMBAI vs. NUPOOR CAPITALS P. LTD, MUMBAI

The appeal filed by the revenue is directed against the order dated 04-10-2013 passed by Ld CIT(A)-8, Mumbai and it relates to the assessment year 2010-11. The revenue is aggrieved by the decision of Ld CIT(A) in deleting the disallowance made u/s 14A of the Act by holding that the assessing officer did not record is dissatisfaction.

The Ld D.R submitted that the assessee had earned tax free income of Rs.24.03 lakhs during the year under consideration. Though the assessee had disallowed a sum of Rs.4,80,660/- u/s 14A of the Act, yet the assessee did not furnish any basis for working out the disallowance. Hence the AO held that the suo-motu disallowance made by the assessee is without any basis and accordingly proceeded to compute the disallowance as per Rule 8D of the Income tax Rules. The Ld D.R submitted that the assessing officer has observed in paragraph 4.1 of the order that the disallowance made by the assessee u/s 14A of the Act is without any basis and the same constitutes dissatisfaction recorded by the AO in terms of sec. 14A of the Act. He submitted that the Hon’ble Supreme Court has held in the case of MAK Data P Ltd (358 ITR 593) that the “satisfaction” required u/s 271(1)(c) need not be recorded in a particular manner. He submitted that the ratio of the said decision would equally apply to sec. 14A of the Act. Accordingly he submitted that the Ld CIT(A) was not justified in deleting the addition made u/s 14A of the Act by holding that the assessing officer has not recorded dissatisfaction.

The Ld A.R, on the contrary, submitted that the assessee has disallowed a sum of Rs.1,16,69,746/- out of interest expenditure and sum of Rs.4,80,660/- computed at 20% of tax free income towards general expenses. He submitted that this fact was given to the AO in point no.6 of the letter dated NIL filed with the AO. He submitted that the assessee had purchased shares of Bajaj Hindustan Limited by utilising the borrowed funds and it had also given the details of workings of interest disallowance also to the AO. Accordingly he submitted that the assessing officer was not right in observing that there is no basis for the disallowance computed by the assessee. He submitted that the AO did not discuss anything about the disallowance made out of interest expenditure (A.Y. 2010-11) ACIT vs. M/s. Nupoor Capitals Pvt. Ltd. in paragraph 4.1 of the assessment order. Accordingly he further submitted that the observations made by the AO in paragraph 4.1 of the assessment order cannot be construed as dissatisfaction contemplated u/s 14A of the Act.

We have heard the rival contentions and perused the record. We notice that the assessee himself has made disallowance u/s 14A of the Act from out of interest expenditure to the tune of Rs.1,16,69,746/- and further disallowed 20% of the dividend income apparently towards expenditure. A perusal of the order passed by Ld CIT(A) shows that the assessee appears to have borrowed funds for making investment in shares of Bajaj Hindustan Limited. Accordingly it has worked out the disallowance of interest expenditure, which shall constitute direct expenditure. However, on a perusal of the workings furnished by the AO, we notice that the assessee has not given details of borrowings, the interest paid thereon. There should not be any doubt that the disallowance worked out by the assessee can be appreciated only if those details are given. Further the assessee has disallowed 20% of dividend income towards expenses. As held by the AO, the basis for working out the disallowance at 20% of dividend income was not furnished by the assessee. We notice that the assessee has made adhoc disallowance of 20% of dividend income without making any reference to the expenses debited to the profit and loss account.

In view of the above said facts, we agree with the observation of the AO that the assessee has not given the basis for working out disallowance. The Ld D.R, by placing reliance on the decision of Hon’ble Supreme Court rendered in the case of MAK Data P Ltd (supra) has contended that there is no requirement to record dissatisfaction in a particular manner. We agree with the said contentions of the assessee. The observations made by the AO that the (A.Y. 2010-11) ACIT vs. M/s. Nupoor Capitals Pvt. Ltd. disallowance made by the assessee without any basis, in our view, brings out the dissatisfaction of the AO with regard to the disallowance computed by the assessee. Accordingly, we are of the view that the Ld CIT(A) was not justified in deleting the disallowance made u/s 14A of the Act by holding that the AO has not recorded his dissatisfaction.

In view of the above, we are of the view that the matter requires fresh examination at the end of the Ld CIT(A) on merits of disallowance. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for adjudicating the same afresh.