2017 (9) TMI 831 - AT - Income Tax

Addition u/s 14A read with Rule 8D - AO made disallowance without recording his dissatisfaction on any cogent ground - Held that - The findings returned by AO that, balance disallowance to the tune of ₹ 6,41,37,885/- needs to be disallowed as per Rule 8D are not sustainable in the eyes of law as there is not an iota of reasons of dis-satisfaction recorded by AO as to work out of disallowance of ₹ 1,63,779/- voluntarily made by the assessee itself because sub-section (2) & (3) of section 14A with Rule 8D of the Rules has only prescribed a formula for determination of an expenditure to earn the income which does not form part of the total income under the Act, which can only be invoked if the AO is not satisfied with the claim of the assessee. The assessee has come up with specific argument that it has not incurred any interest cost for earning exempt income but this plea of the assessee has also been brushed aside by the AO without recording any reason of dis-satisfaction. Moreover, when the assessee is having ample cost free funds to the tune of ₹ 6049.43 crores and had not made investment to earn exempt income as on 31.03.2011, but in its subsidiaries for commercial expediency, the question of disallowance under Rule 8D does not arise. AO has made disallowance without recording his dissatisfaction on any cogent ground and without disputing the computation of disallowance made by the assessee itself rather subjectively written that, the balance disallowance was to be worked out in view of the provisions contained u/s 14A read with Rule 8D which is not sustainable in the eyes of law. - Decided in favour of assessee.

Summary

Issues:
Challenge to deletion of addition made under section 14A of the Income Tax Act.

Analysis:
1. The Appellant, Deputy Commissioner of Income-tax, sought to set aside the order passed by the Commissioner of Income-tax (Appeals) regarding the deletion of an addition made under section 14A of the Income Tax Act for the Assessment Year 2011-12.

2. The Assessing Officer noted that the assessee received exempt dividend income during the year under assessment. The AO proceeded to work out the disallowance under section 14A read with Rule 8D of the Income-tax Rules, resulting in a specific amount.

3. The assessee appealed before the CIT (A), who deleted the addition made by the AO. Subsequently, the Revenue challenged this decision before the Tribunal.

4. During the hearing, the Revenue argued that the AO correctly applied Rule 8D based on the accounts provided by the assessee. The Revenue relied on legal precedents to support its position.

5. In response, the assessee contended that the AO invoked section 14A without proper satisfaction, and the investments made were for commercial purposes, not to earn dividends. The assessee cited previous favorable decisions and legal cases to support their argument.

6. The Tribunal observed that the AO invoked Rule 8D without pointing out any defects in the assessee's voluntary disallowance. The Tribunal referenced the requirement of the AO's satisfaction before applying Rule 8D, as established in legal judgments.

7. Citing the decision in Godrej & Boyce Manufacture Company Ltd. vs. DCIT, the Tribunal emphasized the necessity of the AO's satisfaction before applying Rule 8D. The Tribunal found the AO's actions unsustainable as there was no recorded dissatisfaction regarding the assessee's disallowance.

8. Referring to the case of CIT vs. Taikisha Engineering India Ltd., the Tribunal reiterated the requirement for the AO's satisfaction before recomputing disallowances under section 14A. The Tribunal concluded that the AO's disallowance lacked legal merit.

9. The Tribunal found that the AO's disallowance was made without proper grounds or recorded dissatisfaction, especially considering the assessee's argument that no interest costs were incurred for earning exempt income.

10. Ultimately, the Tribunal dismissed the Revenue's appeal, noting that the AO's disallowance under Rule 8D was not sustainable in the absence of proper satisfaction. The Tribunal found no legal basis for the Revenue's challenge and upheld the CIT (A)'s decision.

This detailed analysis of the judgment highlights the issues, arguments presented by both parties, legal precedents cited, and the Tribunal's decision based on legal principles and factual considerations.