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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI RAJESH KUMAR, AM
O R D E R PER BENCH: These are three appeals under consideration. These three appeals are directed against the three separate orders of CIT(A) dated 20.9.2010, 5.12.2012 and 25.4.2012 for the assessment years 2007-08 to 2009-10 respectively. Since, these appeals pertain to the same assessee, therefore, for the sake of convenience; they are clubbed together, heard together and disposed of in this 2 8095/M/10,4408/M/12 a nd 1836/M/2013 consolidated order. Appeal wise adjudication is given in the succeeding paragraphs. First we will deal with the appeal bearing I.T.A.No.8095/Mum/2010.
The first issue involved in this appeal of the assessee is against the order of CIT(A) confirming the action of the AO in making disallowance of expenditure relating to exempt income by invoking provisions of section 14A of the Income Tax Act (the Act) r.w.rule 8D of the Income tax Rules, 1962 (the Rules).
Brief facts relating to the issue are that the assessee has exempt income in the form of dividend from various investments amounting to Rs. 68.46 crores. The assessee itself computed the disallowance of direct and indirect expenditures after allocating the sum of Rs.28,28,638/- qua exempt income. The computation /details of working of disallowance made by the assessee itself is provided in para 5.2 at page 4 of the assessment order. The AO has invoked the provisions of section 14A of the Act r.w.r 8D of the Rules and by following the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd. (2008) (26 SOT 603) (Mum)(SB), disallowed the claim of the assessee. The assessee before the CIT(A) challenged the disallowance made by AO disallowing direct expenses under Rule 8D (2)(ii) amounting to Rs.11,56,498/- and 0.5% of average investment under rule 8D (2)(iii) at Rs.6,82,00,000/-. The CIT(A) confirmed the action of the AO by observing as under (Para 5):
3 8095/M/10,4408/M/12 a nd 1836/M/2013 “5. I find that the A.O., while computing the disallowance under Rule 8D has taken a sum of Rs. 11,56,498/- as the direct expenses under Rule 80 as offered by the assessee. However, under Rule 8D(2)(ii) the A.O. has computed the disallowance in respect of interest not directly attributable to exempted income as "NIL". The only disallowance made by the A.O. is 0.5% of the average investment which works out to Rs. 6,82,00,000/ -. As explained above I am of the considered view that the computation made by the A.O. has to be sustained as the A.O. has applied the most reasonable method in computing the disallowance u/s. 14A. In the result these grounds of appeal are dismissed.”” Aggrieved, the assessee is in second appeal before us.
4. At outset, the ld. counsel of the assessee submitted before us that in assessee’s own case for immediately preceding year in for AY-2006-07 dated 30.10.2015, the Tribunal, on exactly identical facts deleted the disallowance on the issue of non-recording of satisfaction and also on merits by observing as under : 2. “7. We have considered the submissions of the parties, perused the orders of the authorities below and the material available on record. As far as application of rule 8D is concerned, at the outset, it is to be held that in view of the decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra) and of Hon'ble Delhi High Court in Maxopp Investment Ltd. (supra), said rule will not be applicable to the impugned assessment year as it will apply prospectively and with effect from assessment year 2008–09. Therefore, it cannot be made applicable for disallowance of expenditure under section 14A, for the impugned assessment year. That being the case, the very basis for disallowance of expenditure by the Assessing Officer would not survive. Even otherwise also, if for the sake of argument, it is accepted that rule 8D will apply for the impugned assessment year, the Assessing Officer has to apply it after complying to the condition of section 14A(2). Therefore, at this stage, it is necessary to examine whether the Assessing Officer while assuming jurisdiction under section 14A, has recorded his satisfaction regarding correctness of assessee’s claim having regard to its books of account. Though, the learned Departmental Representative has raised a preliminary objection against taking up this issue, but, we do not find such objection 4 8095/M/10,4408/M/12 a nd 1836/M/2013 acceptable for the following reasons. On going through the submissions made by assessee before the first appellate authority as well as the grounds raised before us, we are of the opinion that the issue raised emanates from the assessment order as well as the order of the learned Commissioner (Appeals) and is covered under ground no.1, raised before us. Having held so, we will now examine whether the Assessing Officer has validly invoked the provisions of section 14A. It is the contention of the learned Counsel for the assessee that in terms with section 14A(2), the Assessing Officer must record a satisfaction that claim of expenditure by the assessee with reference to its books of account for earning exempt income is not correct. Though, recording of satisfaction as provided in sub–section (2) was brought to statute by Finance Act, 2006, w.e.f. 1st April 2007, and applicable for assessment year 2007–08, but, as held by Hon'ble Delhi High Court, in Maxopp Investment Ltd. (supra), even prior to introduction of sub–section (2) to section 14A, the Assessing Officer is required to record his satisfaction regarding correctness of assessee’s claim. In the present case, on a perusal of the assessment order, it is very much clear that the Assessing Officer has not recorded any such satisfaction regarding the correctness of assessee’s claim with regard to its books of account. On reading of the assessment order, it is patent and obvious that the Assessing Officer has rejected assessee’s computation of disallowance under section 14A, simply for the reason that it is not in terms with the method prescribed under rule 8D. In view of the aforesaid, we have no hesitation in holding that satisfaction recorded by Assessing Officer with regard to correctness of assessee’s claim is without valid reasons. Now, coming to the merits of the disallowance worked out by the assessee as well as the Assessing Officer, it is observed that the assessee has worked out the disallowance by taking into consideration the direct expenditure relating to salary paid to three employees in–charge of treasury department and interest expenditure of Rs.6,11,913 and Rs.`2,62,158 respectively. As far as indirect expenditure of `Rs.63,78,70,998, debited to the Profit & Loss account, the assessee has allocated expenditure of ` 7,20,993, for earning exempt income by taking into consideration the area occupied by the treasury department. As far as the disallowance worked out by the Assessing Officer is concerned, it is noticed that the Assessing Officer has no dispute with regard to direct expenses as he has accepted the amount worked out by the assessee. Only in respect of indirect expenses, the Assessing Officer has applied rule 8D(2)(iii) by making disallowance of 0.5% of the total average investment. In our view, the disallowance of indirect expenses made by the Assessing Officer cannot survive firstly because rule 8D(2)(iii) is not applicable for the impugned assessment and secondly, when the Assessing Officer accepts the 5 8095/M/10,4408/M/12 a nd 1836/M/2013 direct expenses relating to salary paid to three employees of the treasury department and also the interest expenditure, he cannot consider such method applied to be unreasonable when it comes to indirect expenses. Moreover, the method adopted by the assessee for allocation of indirect expenses by taking into consideration the total area occupied by treasury section cannot be considered to be totally unacceptable, as the Tribunal has accepted such method in some other cases. A reference in this regard can be had to the decision of the Tribunal, Mumbai Bench, in Voltas Ltd. (supra). In view of the aforesaid, we do not see any reason to uphold the disallowance of indirect expenses made by the Assessing Officer by applying a provisions of rule 8D(2)(iii). However, there is no dispute to the fact that the assessee did incur certain expenses towards earning the exempt income. In fact, the assessee has also accepted this factual position and has submitted a working before the Assessing Officer computing the disallowance under section 14A of the Act at Rs.15,95,064. The judicial precedents on the issue including the decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. (supra) are also unanimous while holding that though rule 8D would not apply prior to assessment year 2008–09, but a reasonable disallowance can be made under section 14A. After considering the facts of the present case, we are of the opinion that the disallowance made by the assessee under section 14A amounting to Rs.15,95,064, is reasonable. We, therefore, direct the Assessing Officer to restrict the disallowance to that amount. In view of our decision as above, the issue raised by the assessee in ground no.2(iii) becomes redundant. Grounds are partly allowed.
The ld. Counsel for the assessee, in view of the above facts, stated that in the present year also there is no satisfaction recorded by the AO for the reasons that the assessee himself has made out disallowance of the amount as noted by the AO in his assessment order at page 1 amounting to Rs.28,28,635/-. The ld. counsel for the assessee took us through para 5.2 of the assessment order and stated that the AO has simply applied the decision of the Special Bench of the 6 8095/M/10,4408/M/12 a nd 1836/M/2013 Tribunal in the case of Daga Capital Management Pvt. Ltd(supra) and has not recorded any satisfaction in this year also.
When this facts were confronted to the ld.Sr.DR, whether the AO has recorded satisfaction in this year. The Ld.Sr.DR took us through on the same para 5.2 and 5.3 as referred by the ld. AR also, but we find that there is no such satisfaction recorded by the AO for rejecting the disallowance claimed by the assessee and correctness of the same. We find that this issue now stands covered in favour of the assessee and against the revenue by the Tribunal decision in assessee’s own case for the assessment year 2006-07 (supra), and even otherwise on the issue of satisfaction, the Hon’ble Kolkata Bench of the Tribunal in the case of REI Agro Ltd. v. Deputy Commissioner of Income-tax, Central Circle-XXVII, Kolkata [2013] 35 taxmann.com 404 (Kolkata- Trib.) has held that no disallowance u/s 14A can be made if satisfaction is not recorded with reference to the correctness of the action of the assessee. This order of Kolkata Tribunal was affirmed by Hon’ble Calcutta High Court in in the case of CIT V/s REI Agro Ltd in GA No.3022 of 2013 in of 2013 dated 23.3.2013. Even otherwise Rule 8D will not apply for the relevant assessment i.e. assessment year 2007-08, the year under consideration as held by Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. 328 ITR 81. In view of the facts and circumstances of the case that there is no satisfaction recorded by the AO about the correctness of the accounts of the 7 8095/M/10,4408/M/12 a nd 1836/M/2013 assessee for making disallowance u/s 14A of the Act, no further disallowance can be made by the AO. Accordingly, we reverse the orders of the lower authorities on this issue. This issue of assessee ’s appeal is allowed.
The second issue raised in this appeal by the assessee is with regard to the order of CIT(A) confirming the action of the AO in not granting the TDS credit amounting to Rs.38,06,399/-.
We have heard both the parties and perused the record placed before us. We find that the AO has not allowed the claim of the credit for TDS amounting to Rs.11,95,766/- and credit for TDS as not claimed by the assessee amounting to Rs.26,10,633/- for the reasons that the TDS certificate were received after filing the return of income. The assessee has filed a copy of rectification letter dated 24.12.2009 addressed to the AO stating that the original TDS certificate mentioning amount of Rs.26,10,633/- were filed with the AO and also details of TDS claimed for an amount of Rs.11,95,766/- were filed during the course of hearing before the AO vide letter dated 13.11.2009. In view of the above facts we are of the view that the AO should have allowed credit to the assessee when the assessee has filed rectification petition before him and even the CIT(A) has directed the AO to allow claim of TDS after verifying the same. We direct the AO to allow the claim of TDS amounting to Rs.11,95,766/- which were filed before him during the course of assessment proceedings and also the TDS 8 8095/M/10,4408/M/12 a nd 1836/M/2013 certificate received late but filed before him along with the rectification letter dated 24.12.2009 amounting to Rs.26,10,633/-. We direct the AO to give credit of this TDS amount and decide the claim immediately.
Now coming to appeals Nos.ITA 4408/M/2012 and ITA NO.1836/M/2013. 9. The next common issue in these appeals of the assessee is against the order of the CIT(A) confirming the disallowance made by the AO in respect of expenditure claimed qua exempt income by invoking the provisions of section 14A of the Act r.w.r.8D of the Rules amounting to Rs.7,02,06,780/- and Rs.4,94,96,516/- for A.Ys 2008-09 and 2009-10 respectively.
We have heard the rival submissions and also gone through the facts and circumstances of the case. We find that the assessee has earned dividend income amounting to Rs.1,43,39,35,917/-for the assessment year 2008-09 and claimed the same as exempt. The assessee himself submitted working of inadmissible amounts u/s 14A of the Act r.w.rule 8D of the Rule i.e. direct expenditure and basis of allocation. The AO disallowed amount of Rs.34,70,979/- The relevant detailed working as given to the AO by assessee, is being reproduced by the AO in para 5.2 at pages 3 and 4 of the assessment order. As pointed out by the ld.AR that there is no satisfaction recorded by the AO in assessment year 2008-09 and 2009-10 and the facts on the issue are exactly identical to that of assessment years 2006-07 and 2007-08. We have gone 9 8095/M/10,4408/M/12 a nd 1836/M/2013 through the assessment orders for both the assessment years and it is seen that it is exactly identical year as assessment years 2006-07 and 2007-08. We have seen that the assessee had disallowed inadmissible expenses relating to exempt income by giving complete working of the same u/s 14A of the Act r.w.r.8D of the rules. The AO has not pointed out any defect or incorrectness in the claim of the assessee despite he has examine complete account. There is no satisfaction recorded by the AO as observed by us in the assessment orders for the assessment years 2006-07 and 2008-09. Taking consistent view, this issue in these two years of assessee’s appeals is allowed.
The next common issue in these appeals of assessee is with regard to not giving credit of TDS amount of Rs.30,31,369/- and Rs.5,44,05,867/- for the assessment years 2008-09 and 2009-10 respectively and advance tax credit of Rs.1,70,00,000/-.
At the outset, the ld. Counsel of the assessee stated that now short credit for TDS is to the extent of Rs.18,55,481/- and advance tax credit is amounting to Rs.1,70,00,000/-. We find from the case record that the assessee has moved a rectification application dated 25.6.2011 and subsequent reminders dated 11.8.2012 and 23.1.2012 but AO has not given any effect on the same. We direct the AO to decide the claim of the assessee immediately with regard to 10 8095/M/10,4408/M/12 a nd 1836/M/2013 granting the issue of credit for TDS and advance tax. We direct the AO accordingly. 13. The next issue in 2009-01 is as regard to the direction of CIT to verify the amount of Rs.99,751/- as reflected in ITS-TDS information-C belonging to assessee. We find that the CIT(A) has only directed the AO to verify the same. We further add that AO will allow opportunity before making addition on this count. Accordingly, this issue of assessee’s appeal is allowed for statistical purposes. 14. The next issue in the appeal bearing is with regard to charging interest under section 234C of the Act. 15. The ld. Counsel for the assessee submitted that the interest charged by the revenue on the amount of TDS credit not allowed and also not allowed credit of advance tax amounting to Rs.5,44,05,867/- and Rs.1,70,00,000/- respectively. Ld. Counsel argued that the AO should not have been charged interest for the reasons, that the assessee has filed complete details in respect of TDS and advance tax before the AO, which is pending rectification as noted in the above grounds. The ld. Counsel for the assessee stated that the assessee is charging with interest u/s 234C amounting to Rs.34,05,105/- but actual interest u/s 234C leviable is only Rs.13,47,442/- and excess interest charges on Rs.20,57,663/- should be deleted.
11 8095/M/10,4408/M/12 a nd 1836/M/2013 16. We have considered the plea of the assessee and directed the AO while dealing with above grounds to give credit for TDS for Rs.5,44,05,867/- and also credit for advance ax for an amount of Rs.1.70 crores. Consequently, interest u/s 234C will be charged after giving credit to these amounts. AO is directed to recompute the same.