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Income Tax Appellate Tribunal, DIVISION BENCH ‘A’, CHANDIGARH
Before: SHRI SANJAY GARG & MS.ANNAPURNA GUPTA&
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’).
Since identical issues have been raised in all the
appeals, the same were heard together and are being
disposed off by this consolidated order.
The sole issue raised in all the appeals is in relation to
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):
The assessee is in the business of trading in securities
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.
At the outset, the Ld. counsel for assessee has
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.
The Ld. DR, on the other hand, has relied upon the
findings of the lower authorities.
We have considered the rival submissions. The above
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
However, as observed above, in the case in hand, the
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.
In view of the legal position as discussed above, we do
not find any justification on the part of the lower
authorities in making further disallowance as has been suo
motto offered by the assessee.
The appeal of the assessee is allowed.
Now coming to the case of Shri Anirudh Garg in ITA
Nos.564 & 1414/Chd/2017.
ITA Nos.564 & 1414/Chd/2017 (Anirudh Garg):
In both these cases, facts and circumstances are
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.
Both the appeals of the assessee are allowed.
In the result, all the above appeals of the assessees
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