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TMI Blog2015 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... is fully covered by the order of Hon'ble Delhi High Court in the case of CIT Vs Taikisha Engineering India Ltd. 54 Taxman.com 109 and filed a copy of the same. Ld. A.R. invited our attention to para 4 of the said order to highlight the facts of that case. Ld. A.R. also took us to para 10 of the said order and submitted that in the present case also, the A.O. has not recorded his objective satisfaction and without recording any satisfaction, he has proceeded to make disallowance as per Rule 8D. Ld. A.R. submitted that above order of Hon'ble Deli High Court was followed by another order of Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. Vs CIT vide order dated 25.02.2015 in I.T.A. No. 117/Del/2015. Therefore, in view of above, Ld. A.R. submitted that the case of assessee is fully covered in its favour. Without prejudice to the above submissions, Ld. A.R. submitted that the assessee was engaged as registered broker and was registered with SEBI and was dealing in equity and F & O Market on behalf of the clients and on its own and the investment in shares has been declared as stock in trade and in this respect, our attention was invited to paper book page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.‖ Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular income or receipt, an amount computed in accordance with the following formula, namely :- A x B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.‖ Sub Rule (1) categorically and significantly states that the Assessing Officer having regard to the account of the assessee and on not being satisfied with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and subsection (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest (other than the amount of interest included in clause (i)) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. 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 of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under sub-section (2) of section 14A. As we shall note shortly hereafter, sub-rule (1) of rule 8D has also incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2).‖ 18. It is in this context we feel that the findings recorded by the CIT(A) and the Tribunal are appropriate and relevant. The clear findings are that the assessee had sufficient funds for making investments in shares and mutual funds. The said findings coupled with the failure of the Assessing Officer to hold and record his satisfaction clinches the issue in favour of the respondent assessee and against the Revenue. The self or voluntary deductions made by the assessee were not rejected and held to be unsatisfactory, on examination of accounts. Judgments in Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re-computation. Therefore, the respondent assessee would succeed and the appeal should be dismissed." 5. We find that Hon'ble Delhi High Court has held that sub-rule 2 of Rule 8D cannot be invoked without recording explanation by A.O. as to why voluntary disallowance made by assessee was not satisfactory. The A.O. has made disallowance by holding as under: "On perusal of details filed by the assessee assessment record and computation of income filed along with return of income, it was found that the assessee has claimed Rs. 9,12,563/- as dividend Income exempted u/s 10(34). The proportionate administrative expenses attributable to earning of the dividend income were not disallowed & added to the declared income as per provisions of Section 14A read with rule 8D. In reply of the Specific query raises by this office, assessee company has submitted vide letter dated'- 16.09.2011 that the assessee company is doing the busine.ss of trading and broking and company earns dividend Income In normal course of business. As per list of dividend income and quantum of dividend itself clear that company has not don ..... X X X X Extracts X X X X X X X X Extracts X X X X
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