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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAMIT KOCHAR, AM
आदेश / O R D E R
PER SHAILENDRA KUMAR YADAV, JM This is appeal filed by the assessee on the following grounds: -
“1. The Ld. Commissioner of Income Tax (Appeals) - 25, Mumbai [hereinafter referred to as “Ld. CIT(A)”] erred in passing the order dated 16.12.20013 confirming the action of the Ld. A.O. in making the following additions as disallowances:
Sr. No. Particulars Amount (Rs.) A Addition on account of alleged receipt 1,09,145/- from M/s. Eagle Construction Co. B Disallowance of Motor Car Expenses 24,928/- C Disallowance of Telephone Expenses 7,909/- D Disallowance of expenditure 34,709/- incurred on sale promotion and sundry expenses E Disallowance under section 14A r.w. 1,00,450/- Rule 8D of the Income Tax Rules, 1962 A. Addition on account of alleged receipt from M/s. Eagle Construction Co. -Rs.1,09,145/- 2. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in making addition of Rs. 1,09,145/- allegedly received from the M/s. Eagle Construction Co. without appreciating the fact that the Appellant has not received any amount from the said company during the impugned assessment year. The Appellant, therefore, prays that the addition of Rs. 1,09,145/- in the hands of the Appellant is not at all justified and the same may be deleted. B. Disallowance of Motor Car Expenses -Rs.24,928/- 3. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in making disallowance of Rs.24,928/- being 10% of the expenditure incurred on Motor Car without appreciating the fact that the motor car was exclusively used for carrying out the business activity of the Appellant. The Appellate, therefore, prays that the disallowance of 10% of expenditure incurred on Motor Car amounting to Rs.24,928/- is not at all justified and the same may be deleted. C. Disallowance of Telephone Expenses -Rs.7,909/- 4. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in making ad-hoc disallowance of Rs.7,909/- out of the telephone expenditure incurred during the impugned assessment year without appreciating the fact that the telephone was used only in the normal business activity of the Appellant. The Appellant, therefore, prays that the ad-hoc disallowance of telephone expenditure is not at all justified and the same may be deleted.
D. Disallowance of expenditure incurred on sale promotion and sundry expenses -Rs.34,709/- 5. The Ld. CIT(A) erred in confirming the order of the Ld. A.O. in making ad-hoc addition of Rs.34,709/- being 10% of the expenditure incurred on sale promotion and sundry expenses without appreciating the fact that the said expenditure are incurred in the normal course of business activity and the same are duly supported by proper vouchers. The Appellant, therefore, prays that the ad-hoc disallowance of Rs.34,709/- out of sale promotion and sundry expenses are not at all justified and the same may be deleted. Disallowance under section 14A r.w. Rule 8D of the Income E Tax Rules, 1962 -Rs.1,00,450/- 6. The Ld. CIT(A) erred in confirming the action of the A.O. in making disallowance under section 14A r.w.s. 8D amounting Rs.1,00,450/- without appreciating the facts that the provisions of section 14A are not at all attracted to the facts of the Appellant's case. The Appellant, therefore, prays that the disallowance of Rs. 1,00,450/- by invoking the provisions of Section 14A read with Rule 8D is not at all justified and hence, the same may be deleted.
The Ld. CIT(A) failed to appreciate that the Rule 8D can be invoked only after the A. 0. is satisfied that sub Section (1) to Section 14A is not applicable. Hence, disallowance of Rs. 1,00,450/- is not at all justified and the same may be deleted.
8. The Ld. CIT(A) failed to appreciate that the Appellant has not incurred any expenditure for earning the tax free dividend income. The Appellant, therefore, prays that the disallowance of expenditure amounting to Rs. 1,00,450/- under Section 14A of the Act by invoking the provisions of Rule 8D is not at all justified and the same may be deleted.
The Ld. CIT(A) further failed to appreciate that the Ld. A. 0. has made disallowance of Rs. 1,00,450/- for earning the dividend income of Rs.30,839/- i.e. more than double of the dividend income. The Appellant, therefore, prays that the disallowance of Rs. 1,00,450/- under Section 14A of the Act by invoking the provisions of Rule 8D is not at all justified and the same may be deleted.
The Appellant denies any liability to pay interest under section 234C or section 234D of the Act. Hence, the same are not leviable.” 2. First issue is with regard to alleged receipt from M/s. Eagle Construction Co. of `1,09,145/-. Assessing Officer made addition of `1,09,145/- on the allegation that the same was received from Eagle Construction Co. In this regard the learned counsel of the assessee drew our attention to the affidavit of the assessee placed on pages 34 & 35 submitting that he has not entered into or having any transaction with Eagle Construction Company in respect of supply of Sub Contractor, for the financial year 2009-10. Over and above he has neither received any amount by cheque from Eagle Construction nor any TDS certificate for the same. It was further certified that there is no transaction found for A.Y. 2011-12 and 2012-13 as per section 26AS statement. It is the settled legal position that contents of the affidavit should be demolished only after confronting the content of the same to the deponent which has not been done in this case, which is not justified. In the interest of justice we restore this issue to the Assessing Officer with the direction to decide the same as
per facts and law after providing due opportunity to assessee. Since we restore this issue to the Assessing Officer we are refraining from commenting on merit of issue at hand.
Other disallowances are with regard to motor car expenses, telephone expenses and disallowance of expenditure incurred on sale promotion and sundry expenses. In this regard the Assessing Officer made disallowance of 10%. Taking all facts and circumstances into consideration we restrict the same to 5%.
Last issue is with regard to disallowance under section 14A r.w.
Rule 8D of the Income Tax Rules, 1962 of `1,00,450/-. In this regard our attention was drawn towards the decision of Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT in wherein the court held us under: - “7. During the course of hearing, counsel for the petitioner had relied upon a decision of this Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., (ITA 115/2014, decided on 25.11.2014). The court had, in that judgment, highlighted the necessity in view of the peculiar wording of Section 14A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and only if the assessee’s explanation is unsatisfactory, can the AO proceed further.
The Court in Taikisha Engineering (supra) pertinently observed: - “Thus, Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under sub Rule (2) to Rule 8D of the Rules is to be made. ITA117-15 Page 5 13. We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section (2) to Section 14A of the Act and sub Rule (1) to Rule 8D of the Rules.”
9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing `2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is `48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., `52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.
10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty ITA117-15 Page 6 proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed.” 4.1 We find that in the case of Joint Investment Pvt. Ltd. it has been held that disallowance under section 14A may be made to the extent of disallowing expenses incurred by assessee in relation to exempt income. In view of this we restore the matter to the Assessing Officer with the direction to decide the same as per the fact and law.