SAI SERVICE PRIVATE LIMITED,PUNE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE

ORDER

PER DR. DIPAK P. RIPOTE, AM:

raised by the assessee for A.Y. 2020-21 are as under : “The Appellant being aggrieved by the Order and decision of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, vide order dated 04/09/2023 bearing DIN & Order No. ITBA/NFAC/S/250/2023-24/1055706047(1) is filing this appeal on the following Grounds of Appeal.

1. The Commissioner of Income Tax (Appeals) erred in confirming the additional disallowance of Rs.78,20,410/- made by the learned AO u/s 14A by invoking Rule 8D of the I.T.Rules despite the fact that, justification of working of disallowance made by the Appellant was given. The excess disallowance of Rs.78,20,410/- confirmed by the Commissioner of Income Tax (Appeals) be deleted. Addition made to the income be deleted and Appellant’s contention be, accepted.

2. The appellant craves leave to add, amend, alter, delete or substitute all or any of the above grounds of appeal.

3. Such order and such other orders be passed as deem fit and proper.” Findings & Analysis :

2. We have heard both the parties and perused the records. The only sole issue in this appeal is “Addition under section 14A read with rule 8D of Rs.78,20,410/-”.

2.1 The ld.AR brought to our notice that AO has not recorded any satisfaction before making the disallowance under section 14A of the Act. The ld.AR took us through the relevant paragraphs of the assessment order. Therefore, ld.AR pleaded that disallowance under section 14A is not maintainable.

2.2 We have perused the assessment order. The relevant paragraphs of the assessment order are reproduced as under : “3.1.1 Issue No. 1: received dividend of Rs.1,50,00,000/- from subsidiary company and dividend from mutual funds on an investment of Rs.3,43,02,047 and shown as exempt income u/s 10 of the Act. In view of this, an amount of Rs.89,41,410/- is disallowable u/s 14A read with Rule 8D from the expenses claimed by the assessee as attributable to the investments made from which the assessee is eligible to receive exempt tax free income. The assessee has already disallowed Rs.11,21,000/- u/s 14A on its own. Therefore an additional disallowance of Rs.78,20,410/- is considered to be made u/s 14A of the Act. 3.4.1 Issue No.1 : The assessee has already disallowed Rs.11,21,000/- u/s 14A on its own. Therefore an additional disallowance of Rs.78,20,410/- was proposed to be made u/s 14A of the Act. 4.1 Issue No.1 : The Assessee has stated in its reply that the investments are old in nature, have been made out of own funds and there have not been any expenses such as maintenance or engagement of any professional been made over it. Hence the Assessee has pleaded for no additional disallowances under this head. 7.1 Issue No.1 : The assessee has already disallowed Rs.11,21,000/- u/s 14A on its own. Therefore an additional disallowance of Rs.78,20,410/- is to be made. Penalty Proceedings under Section 270A(1) for under- reporting ( the income are to be initiated separately in relation to this.” 2.3 Thus, as can be seen from the above paragraphs of the assessment order, nowhere Assessing Officer(AO) has recorded his satisfaction which is pre-requisite of section 14A of the Act.

2.4 The Hon’ble Supreme Court in Maxopp Investment Ltd. v/s CIT 402 ITR 640 (SC) has held as under : “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment.”

2.5 We have already observed in earlier paragraphs that the AO has not recorded his satisfaction in assessment order. Therefore, respectfully following the Hon’ble Supreme Court(supra), we direct the AO to delete the addition of Rs.78,20,410/- made under section 14A read with rule 8D on account of failure to record satisfaction. Accordingly, Ground No.1 of the assessee is allowed.