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TMI Blog2015 (6) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. - I.T.A. No.5348/Mum/2012 - - - Dated:- 10-6-2015 - SHRI R.C. SHARMA and Ms. SUSHMA CHOWALA, JJ. For the Petitioner : Shri M.M. Golvala Shri Bhaumik Sanghvi For the Respondent : Shri Neil Philip ORDER Per Sushma Chowla, J.M. This appeal by the assessee is directed against the order dated 24.04.20121 passed by CIT(A)-7, Mumbai and it pertains to A.Y. 2009-10. 2. Following grounds were urged by the assessee before us: - 1. The CIT(A) erred in confirming the disallowance of ₹ 39,40,500/- under Section 14A of the Income-tax Act read with Rule 8D(2)(iii) of the Income Tax Rules. 2. The CIT(A) erred in not following the methodology adopted by the CIT(A) in preceding assessment years for computing the disallowance under section 14A, which methodology has been accepted by the Department. 3. The CIT(A) erred in confirming the disallowance under section 14A read with Rule 8D(2)(iii) without appreciating the fact that the Assessing Officer has not recorded any satisfaction to the effect that the disallowance under section 14A as computed by the Appellant was incorrect. 3. Brief facts necessary for disposal of the appeal are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,78,804/- in addition to the disallowance made by the assessee at ₹ 19,72,280/-. The CIT(A) held that same had led to double disallowance of STT and accordingly the disallowance made by the AO at ₹ 7,78,804/- under section 14A read with Rule 8D(2)(i) of the I.T. Rules was deleted. The assessee is in appeal against the said order of the CIT(A). 6. The learned A.R. for the assessee, at the outset, pointed out that before making the disallowance under section 14A read with Rule 8D of the I.T. Rules, the AO has not recorded any satisfaction as to why the disallowance made by the assessee under the said provisions should not be accepted. Our attention was drawn to the working of disallowance worked out by the assessee which is placed on page 35 of the paper book, under which assessee had declared 19,72,280/- and also explanation of the assessee on page 37 of the paper book under which explanation was given as to why the provisions of Rule 8D are not applicable. The learned A.R. for the assessee further contended that assessee was maintaining separate treasury department and the percentage of tax free income was 28% as against the percentage of taxable income which was 72% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is in relation to application of the provisions of section 14A of the I.T. Act and Rule 8D of the I.T. Rules. Section 14A lays down that while computing the total income in the hands of the assessee, no deduction shall be allowed in respect of expenditure incurred by the assessee in earning such income, which does not form part of the total income under the Act. In other words, the expenditure relating to the income, which is exempt from tax is not to be allowed as a deduction under section 14A of the Act. Subsection 2 to the section provides that the AO shall determine the amount of expenditure incurred in relation to such income, which does not form part of total income under the Act, in accordance with such method as may be prescribed. It is further provided that if the AO having regard to the facts 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 do not form part of the total income, then such disallowance has to be worked out. In other words, before relying to the provisions of Rule 8D provided under the Income Tax Rules, which prescribes the method of calculating the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it is only when having regard to the accounts of the assessee, the AO is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the rules; (ix) The satisfaction envisaged by sub-s. (2) of s. 14A is an objective satisfaction that has to be arrived at by the AO having regard to the accounts of the assessee. The safeguard introduced by sub-s. (2) of s. 14A for a fair and reasonable exercise of power by the AO, conditioned as it is by the requirement of an objective satisfaction, must, therefore, be scrupulously observed. 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 recording of reasons by the AO in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee; 11. The Hon'ble Bombay High Court in Taikisha Engineering India Ltd. (supra) held as under: - Section 14A of the Act postulates and states that no deduction shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee computed the disallowance which was relatable to earning of present income. The detailed working of the expenses shows that an amount of ₹ 19.72 lakhs are attributable to the exempt income earned by the assessee (record placed at pages 44 to 46 of the paper book). In view of the detailed working given by the assessee and following the ratio laid down by the Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. (supra) and by the Hon'ble Delhi High Court in the case Taikisha Engineering India Ltd. and Maxopp Investment Ltd. before applying the provisions of Rule 8D of the I.T. Rules, the AO was duty bound to record his dissatisfaction that the working of the disallowance made by the assessee under section 14A of the Act was incorrect. A perusal of the assessment order reflects that no such dissatisfaction was recorded by the AO and in view thereof the provisions of section 14A(2) of the Act had not been applied and accordingly we find no merit in the disallowance made by the AO under section 14A(2) of the Act read with Rule 8D without recording dissatisfaction that the working made by the assessee vis- -vis the expenditure which is to be disallowed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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