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2019 (9) TMI 1312 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - sufficiency of own funds - HELD THAT - Contention of the assessee that as its own funds were sufficient to justify the investments made in the exempt income yielding assets, therefore, no disallowance u/s 14A in respect of any part of the interest expenditure was called for in the hands of the assessee, merits acceptance. At the same time, the aforesaid claim of the assessee cannot be summarily accepted on the very face it, and would require verification on the part of revenue. Accordingly, in all fairness, we restore the matter to the file of the A.O with a direction to verify the veracity of the aforesaid claim of the assessee. In case, the aforesaid facts as had been so stated by the ld. A.R before us are found to be correct and in order, then the disallowance made by the A.O in respect of the interest expenditure u/s 14A r.w. Rule 8D(2)(ii) shall stand vacated. A.O had failed to record any dissatisfaction as regards the correctness of the claim of the assessee insofar the disallowance of any part of the administrative expenses for earning of the exempt dividend income - A.O had failed to record any dissatisfaction as regards the correctness of the claim of the assessee insofar disallowance on account of administrative expenses offered by him under Sec. 14A is concerned. In fact, there is not even any whisper on the part of the A.O as to why the disallowance of the amount of salary and other overheads as had been offered by the assessee in its return of income was not be accepted. In our considered view, the very process of determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the A.O returns a finding that he is not satisfied with the correctness of the assessee‟s claim in respect of such expenditure. We are of the considered view, that the A.O before discarding the claim of the assessee as regards the amount of expenditure incurred in relation to the exempt income, remains under a statutory obligation to record cogent reasons as regards his dissatisfaction in respect of such claim of the assessee, before adverting to and quantifying the amount of disallowance in accordance with method prescribed in Sec.14A r.w Rule 8D. A.O had failed to satisfy the statutory requirement of arriving at a satisfaction, that having regard to the accounts of the assessee, as placed before him, it was not possible for him generate the requisite satisfaction with regard to the correctness of the claim of disallowance made by the assessee u/s 14A. We are also not persuaded to subscribe to the claim of the ld. D.R, that as the disallowance by the assessee u/s 14A was on an estimate basis and not by way of a debit to any expenditure account, therefore, there was no obligation on the A.O to have recorded his satisfaction as to why the claim of the assessee was not to be accepted. Disallowance made by the A.O u/s 14A r.w. Rule 8D(2)(ii) in respect of the interest expenditure is restored to his file for fresh adjudication, in terms of our aforesaid observations. As for the disallowance made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), the same in the absence of any dissatisfaction recorded by the A.O as regards the correctness of the claim of the assessee as regards attribution of a part of the administrative expenses for the purpose of earning of the exempt dividend income, the addition therein made by the A.O stands vacated - Decided in favour of assessee. Disallowance of the professional fees - HELD THAT - As is discernible from the documentary evidence to which our attention was drawn by the ld. A.R, it can safely be gathered, that the aforesaid person had rendered his services as an overseas advisor in Japan, and had explored opportunities in the overseas market for the assessee. We find substantial force in the claim of the ld. A.R that the payments made to the said person were for the services which were rendered by him viz. creating awareness about the assessee company and its products amongst the foreign parties, supporting it in its marketing efforts, arranging meetings with Japanese business contacts, and also assisting in translation and supplying of information Aforesaid documentary evidence which had been relied upon by the ld. A.R to support the aforesaid claim of expenses debited by the assessee in its profit and loss account for the year under consideration, had neither been dislodged by the lower authorities, nor anything proving to the contrary had been placed on our record by the ld. D.R in the course of the hearing of the appeal. Accordingly, finding no force in the claim of the revenue that the CIT(A) was in error in deleting the disallowance of the consultancy charges of ₹ 43 lacs that was paid by the assessee company to Mr. Arata Nambu, we uphold his order to the said extent. Disallowance of commission to Galaxy Automobile Pvt. Ltd. and IKON Solutions to the file of the A.O, failing to appreciate that the power to set aside‟ a matter as was vested with him u/s 251were no more available w.e.f 01.06.2001 - CIT(A) had after perusing the documentary evidence which were placed on his record by the assessee in the course of the appellate proceedings viz. copy of agreement, form 16A, copy of ledger account of the aforesaid parties, copy of letter received from M/s Galaxy Toyota, New Delhi dated 26.10.2011 in response to notice that was issued by the A.O under Sec.133(6) of the Act, along with the copy of the certificate incorporation of the said company viz. Galaxy Toyota, and also the copy of passport, driving licence, PAN Card, etc. of its directors, had after considering the contention of the assessee that sufficient opportunity was not provided by the A.O to furnish the aforesaid documents, had thus, for the limited purpose for verifying the said documents restored the matter to the file of the A.O, with a specific direction that the claim of the assessee be allowed in case the same was found to be in order. In our considered view, the aforesaid restoring of the matter by the CIT(A) to the file of the A.O for a limited purpose of allowing the claim of deduction raised by the assessee after verifying the documents, cannot be placed at par with setting aside‟ of the matter for framing a fresh assessment to the file of the A.O. Accordingly, we are unable to persuade ourselves to subscribe to the aforesaid claim of the revenue, which is thus rejected.
Issues Involved:
1. Disallowance under section 14A read with Rule 8D. 2. Verification of commission payments to Automobiles P. Ltd. and IKON Solutions. 3. Professional fees paid to Mr. Arata Nambu. 4. Jurisdiction of CIT(A) to set aside issues to the A.O post 01.06.2001. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee challenged the disallowance made by the A.O under Section 14A calculated by applying Rule 8D. The A.O observed that the assessee had earned a dividend income of ?14,49,99,258/- and offered a disallowance of ?54,86,307/-. However, the A.O was not convinced and invoked Rule 8D, disallowing ?146,82,00,000/-, later revised to ?71,37,00,000/- under Section 154. The CIT(A) upheld the disallowance but directed the A.O to exclude investments in the subsidiary company yielding taxable income. The Tribunal noted that the assessee had sufficient own funds to justify the investments in exempt income-yielding assets, relying on the judgment in CIT-2, Mumbai, Vs. HDFC Bank Ltd. (2014) 360 ITR 505 (Bom). The Tribunal directed the A.O to verify the assessee's claim regarding the sufficiency of own funds. If verified, the disallowance under Rule 8D(2)(ii) should be vacated. Regarding administrative expenses, the Tribunal found that the A.O failed to record dissatisfaction with the assessee's claim, as required by the judgment in Godrej & Boyce Manufacturing Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC). Consequently, the disallowance under Rule 8D(2)(iii) was vacated. 2. Verification of Commission Payments: The CIT(A) referred the matter back to the A.O for verification of the commission payments to Automobiles P. Ltd. and IKON Solutions. The Tribunal noted that the CIT(A) had directed the A.O to verify the documents furnished by the assessee and allow the claim if found in order. The Tribunal upheld this approach, distinguishing it from setting aside the matter for a fresh assessment, which is not permitted post 01.06.2001. 3. Professional Fees Paid to Mr. Arata Nambu: The revenue contested the deletion of the disallowance of professional fees of ?43 lacs paid to Mr. Arata Nambu. The Tribunal found substantial evidence supporting the claim that Mr. Nambu rendered services as an overseas advisor in Japan, assisting in marketing efforts and creating awareness about the assessee's products. The Tribunal upheld the CIT(A)'s deletion of the disallowance. 4. Jurisdiction of CIT(A) to Set Aside Issues: The revenue argued that the CIT(A) exceeded his powers by setting aside the issue of commission payments for verification. The Tribunal clarified that the CIT(A) had not set aside the matter for a fresh assessment but had merely directed the A.O to verify specific documents. This approach was within the CIT(A)'s jurisdiction and did not contravene the provisions effective from 01.06.2001. Conclusion: The appeal of the assessee was partly allowed, with the disallowance under Rule 8D(2)(ii) remanded for verification and the disallowance under Rule 8D(2)(iii) vacated. The appeal of the revenue was dismissed, upholding the CIT(A)'s directions for verification of commission payments and deletion of the disallowance of professional fees.
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