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TMI Blog2016 (7) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by assessee in its appeal is that L'd CIT(A) erred in confirming the action of Assessing Officer by disallowing a sum of Rs. 79,219/- under Rule 8D(2)(ii) of the Income Tax Rules, 1962 ("IT Rule" for short) and some of Rs. 17,31,535/- under Rule 8D(iii) r.w.s. 14A of the Act. 4. Facts in brief are that assessee in this present case is a Private Limited Company and holding license of Non Banking Financial Corporation (NBFC for short) issued by Reserve Bank of India. The assessee is engaged in business of loan, investment and real estate development. The assessee has filed its return of income on 28.07.2008 declaring total income of Rs. 2,62,49,220/- for the year under consideration. Thereafter case was selected for scrutiny and notice issued u/s 143(2) of the Act was issued. The assessee, during the year earned tax exempted income in the form of dividend income of Rs. 16,00,385/- and Long Term Capital Gains (LTCG for short) of Rs. 60,47,303/-. The AO during the course of assessment proceedings observed that no expenditure has been disallowed by assessee in its books of account under section 14A of the Act in relation to the exempted income. Accordingly, AO issued show cause no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 67,416/- b) depreciation 9,22,643/- c) charity and donation 8,00,000/- d) miscellaneous expenses 2,95,728/- e) interest 1,04,235/- f) securities transaction tax 5,20,225/- 27,10,046/- Out of above expenses depreciation being statutory allowance and outside the purview u/s 14A of the Act. Similarly, STT, charitable to donation has already been suo motu disallowed in the computation of income, the interest claimed on expenditure has no nexus with this exempted income and therefore it is allowable expense u/s 36(1)(iii) of the Act. Finally, assessee submitted that balance expenses of Rs. 3,63,114/- can be at the most subject to the provision of Sec. 14A of the Act r.w.s 8D of the IT Rules. 6. The assessee also submitted that AO has not recorded any satisfaction before invoking the provision of Rule 8D of the IT Rule as required u/s 14A(2) of the Act. The AO can make the disallowance only after having regard to the accounts of the assessee and is not satisfied with the correctness of the claim of assessee. However, Ld. CIT(A) disregarded the claim of assessee by holding as under:- "4. I have considered the finding of the AO in his order dt. 30.08.2010 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment since interest received was more than interest paid and hence otherwise also no disallowance can be made and regarding in this question, cited in the case of Trade Apartments Ltd. in ITA No. 1277/Kol/2011 dated 30.03.2012. Ld. AR stated that disallowance of Rs. 17,31,535/- was not justified since no satisfaction was recorded and alternatively considering the volume of other business transactions and the fact that in AY 2009-10 entire business of granting of loans and advances could be carried out for Rs. 4.45 lakhs and disallowance of Rs. 17,31,535/-- was not justified. Again, Ld. AR argued that AY 2009-10, the assessee itself disallowed Rs. 56,502/- u/s. 14A out of the total claim of Rs. 4.45 lakhs but AO further disallowed Rs. 15,76,109/- under Rule 8(D)(2)(ii) of the IT Rule and further disallowance of Rs. 17,612,279/- which also included disallowance form interest of Rs. 1,85,270/-. He invited our attention that AO has even disallowed the amount far in excess of the actual expenditure claimed in the profit and loss a/c for which AO has not applied his mind without recording satisfaction. On the other hand, L'd DR vehemently relied on the orders of Authorities Below. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred in relation to earning of non-taxable income. In our considered view, it was necessary for the AO to arrive at applying the provision of the Act 14A of the Act to record the 'satisfaction' after having regard to its books of account. In this connection, we are relying on the following judgments:- a) Auchtel Products Ltd v. ACIT (2012) 52 SOT 39 (Bom) b) ACIT vs. Sil Investment Ltd. 54 SOT 69 (Trib. Delhi) c) Relaxo Footwears Ltd. V. ACIT (2912) 18 taxmann.com 333 (Del) d) Balarampur Chini Mills Ltd. Vs. DCIT (2012) 20 taxmann.com 117 (Kol) e) ACIT vs. Elcher Ltd. (2006) 101 TTJ 369 (Del) f) ACIT vs. Jindal Saw Pipes Ltd (2008) 118 TTJ 228 (Del) g) CIT vs. Metalman Auto P. Ltd. (2011) 336 ITR 434 (P & H) h) CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P & H) i) DCIT vs. Jindal Photo Ltd.ITA No.4539/Del/2010 dated 22.12.2010 j) Godrej & Byoce vs. DCIT 328 ITR 81 (Bom) The relevant extract of the order of Hon'ble Delhi Tribunal in the case of ACIT vs. Elcher Ltd. (2006) 101 TTJ 369 (Del) is reproduced below. "A look at the language of s. 14A shows that the AO can disallow only expenditure "incurred" by the assessee in relation to the exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is clear from the section, it follows that it is the duty of the AO to pin point such expenditure on the basis of the material on record. Sec. 14 only removes the disability on the part of the AO to disallow such expenditure, a disability to which he was subjected by the three judgments of the Supreme Court. The mere removal of the disability statutorily, however does not ipso facto authorize him to assume that a part of the expenditure has been incurred by the assessee in relation to the exempted income and to proceed to disallow the same on estimate. The section does not relieve the AO of the burden of proving, on the basis of evidence or material on record that the assessee has in fact incurred expenditure which has relation to the exempted income. There is no dispute that the entire dividend of Rs. 83,02,635 which is exempt under s. 10(33) was received from EM Ltd. by a single dividend warrant and no effort or expenses were necessary or were incurred to earn such income. There is also no material brought to show that the assessee's contention that no part of the interest can be attributed to the earning of the dividend income since the shares were acquired from the own funds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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