JATINDER GARG,LUDHIANA vs. ASSTT. COMMISSSIONER OF INCOME TAX, LUDHIANA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.561/Chd/2017 (Assessment Year : 2009-10) Jatinder Garg, Vs. The A.C.I.T., 172-C, B.R.S. Nagar, Circel 6, Ludhiana. Ludhiana. PAN: ADFPG2621P ITA No.564/Chd/2017 (Assessment Year : 2009-10) Anirudh Garg, Vs. The A.C.I.T., 125-A, Raj Guru Nagar, Circel 6, Ludhiana. Ludhiana. PAN: AHYPG956A & ITA No.1414/Chd/2017 (Assessment Year : 2010-11) Anirudh Garg, Vs. The J.C.I.T., 125-A, Raj Guru Nagar, Range-VI, Ludhiana. Ludhiana. PAN: AHYPG956A (Appellant) (Respondent)

Appellant by : Shri K.J.Shelly, Adv. Respondent by : Smt.Chanderkanta, Addl.CIT Date of hearing :26.04.2018 Date of Pronouncement :20.06.2018

ORDER Per Sanjay Garg, Judicial Member :

All above appeals have been preferred by two assessees

against the separate orders of Ld. Commissioner of Income

Tax(Appeals)-4, Ludhiana (hereinafter referred to as

(‘Ld.CIT(Appeals)’ in Appeal No.245/ROT(213)/IT/CIT(A)-

4/LDH/2014-15, Appeal No.246/ROT(214)/IT/CIT(A)-

2 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

4/LDH/2014-15 and Appeal No.355/ROT(417)/IT/CIT(A)-

4/LDH/2014-15 dated 16.1.2017, 16.1.2017 & 26.7.2017

relating to assessment years 2009-10, 2009-10 and 2010-11

respectively, passed u/s 250(6) of the Income Tax Act, 1961

(in short ‘the Act’).

appeals, the same were heard together and are being

disposed off by this consolidated order.

disallowance of expenditure u/s 14A r.w.r. 8D of the

Income Tax Rules, 1962 (in short ‘the Rules”) in relation to

the tax exempt dividend income earned by the assessee.

First we take up the appeal of Shri Jatinder Garg in

ITA No.561/Chd/2017 for assessment year 2009-10.

ITA No.561/Chd/2017 (Jatinder Garg):

and derivative products and also make investment in shares

and securities. The assessee filed his return of income for

the year under consideration on 30.9.2009 declaring therein

an income of Rs.18,50,040/-. During assessment

proceedings, the Assessing Officer noticed that the assessee

during the year had earned dividend income of

Rs.1,15,227/- from the investment made of

Rs.2,61,81,348/- in shares. On being asked to explain as

to the disallowance of expenditure in relation of the tax

exempt income, the assessee explained that he has suo

3 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

motto disallowed a sum of Rs.6000/- which was incurred in

relation to earning of the tax exempt income. Since the said

dividend was tax exempt income, the Assessing Officer

invoking the provisions of section 14 r.w.r. 8D of the

Income Tax Rules apportioned the expenditure incurred by

the assessee in relation to the above said activities and

made the disallowance of Rs.1,27,788/-, which has been

further confirmed by the CIT(Appeals). Thus, the assessee

has come in appeal before us.

submitted that no disallowance under Rule 8D(2)(ii) of the

Rules on account of apportionment of interest expenditure

has been made by the Assessing Officer. The only

disallowance that has been made is on administrative

expenses under Rule 8D(2)(iii) of the Rules. The Ld. counsel

for assessee has submitted that the total expenditure

claimed by the assessee on account of business expenditure

debited to the Profit & Loss Account in the year under

consideration was Rs.83,560/-. The assessee had shown

total turnover to the tune of Rs.62,14,224/-, out of which

the assessee had returned an income of Rs.18,50,040/-.

The assessee himself suo motto had disallowed the

expenditure of Rs.6000/- incurred in relation to earning of

tax exempt income. The Ld. counsel for assessee has further

invited our attention to the impugned assessment order in

question to submit that while invoking the provisions of

Rule 8D of the Rules, the Assessing Officer had not

4 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

recorded any dis-satisfaction in relation to the suo motto

expenditure offered by the assessee. He, therefore, has

pleaded that the action of the Assessing Officer in

straightway applying the provisions of Rule 8D was wrong.

findings of the lower authorities.

facts and figures show that the Assessing Officer made

disallowance of expenditure more than the total expenditure

claimed by the assessee. Even the disallowance made by the

Assessing Officer is more than the tax exempt income

earned by the assessee. The assessee has returned an

income of Rs.18,50,040/-, against which an expenditure of

Rs.83,560/- has been claimed. The Assessing Officer has

not recorded any satisfaction in regard to the claim of the

assessee that it has not incurred expenditure more than

that has been suo motto offered by the assessee. It has

been held by the Hon'ble Bombay High Court in the case of

Godrej & Boyce Manufacturing Co., 328 ITR 81 that under

section 14A of the Act, resort can be made to Rule 8D of the

Income Tax Rules for determining the amount of

expenditure in relation to exempt income, if, the Assessing

Officer is not satisfied with the correctness of the claim

made by the assessee in respect of such expenditure. The

satisfaction of the Assessing Officer has to be arrived at,

having regard to the accounts of the assessee. Sub section

(2) does not ipso facto enable the Assessing Officer to apply

5 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

the method prescribed by the rules straightaway without

considering whether the claim made by the assessee in

respect of such expenditure is correct. The satisfaction of

the Assessing Officer must be arrived at on an objective

basis. In a situation where the accounts of the assessee

furnish an objective basis for the Assessing Officer to arrive

at a satisfaction in regard to the correctness of the claim of

the assessee, there would be no warrant for taking recourse

to the method prescribed by the rules. An objective

satisfaction contemplates a notice to the assessee, an

opportunity to the assessee to place on record all the

relevant facts including his accounts and in the event that

he comes to the conclusion that he is not satisfied with the

claim of the assessee. The above decision of the Hon'ble

Bombay High Court has been upheld by the Hon'ble

Supreme Court vide decision reported in reported in (2017)

81 Taxmann.com 111 (SC) in the case of Godrej & Boyce

Manufacturing Co. Vs. DCIT. Further, the Hon'ble Supreme

Court in the case of Maxo Opp Investment Ltd. Vs. CIT

(2018) 91 Taxmann.com 154 (SC) has reaffirmed the above

proposition in the following words:

“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. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.”

6 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

Assessing officer, while making the disallowance, has not

followed the guidelines of objective satisfaction as laid

down in the above referred to decisions of the Hon'ble

Supreme Court. He without recording any reasoning for his

dissatisfaction with regard to the working/claim of the

assessee, straightway applied Rule 8D against the mandate

of the provisions of section 14A of the Income Tax Act.

not find any justification on the part of the lower

authorities in making further disallowance as has been suo

motto offered by the assessee.

Nos.564 & 1414/Chd/2017.

ITA Nos.564 & 1414/Chd/2017 (Anirudh Garg):

almost identical to the case of the assessee in ITA

No.561/Chd/2017. In these cases also, no disallowance on

account of interest expenditure has been made by the

Assessing Officer. The disallowance u/s 14A has been made

in respect of administrative expenses u/s 8D(2)(ii) of the

Income Tax Rules. However, while making the aforesaid

disallowance, no satisfaction has been recorded by the

Assessing Officer regarding the claim of the assessee in

respect of expenditure/no expenditure incurred by him in

7 ITA Nos.561, 564 & 1414/Chd/2017 AYs: 2009-10 & 2010-11

relation to earning of tax exempt income. In view of our

findings given above, while deciding the case of Shri

Jatinder Garg in ITA No.561/Chd/2018, the additions made

by the lower authorities on this issue are not sustainable in

the eyes of law and accordingly, the same are deleted.

are allowed.

Order pronounced in the open court on 20.06.2018.

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 20th June, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh