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TMI Blog2016 (12) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 25 lakhs, there has to be strong reasons why the said amount of ₹ 25 lakhs are to be rejected. The opinion of the assessing officer in the latter part [of Section 14A(2)] is to be based upon an appraisal of objective material relating to the assessee’s voluntary disallowance of amount/amounts. Not only that, if in the course of assessment, the AO enquires from the assessee about the amounts spent, which are to be disallowed, and the assessee in fact discloses a larger amount (than the one given in the return), it is still incumbent upon the AO to enquire into such larger amounts and determine whether it has nexus with expenditure relatable to exempt income to attract Section 14A(1). Sans this procedure, Section 14A would be reduced to a mere formality which it appears to have become in the circumstances of the case. Consequently, we are of the opinion that there is no infirmity in the reasoning and conclusions of the ITAT. - Decided against revenue - ITA 781/2016 - - - Dated:- 6-12-2016 - MR. S. RAVINDRA BHAT MR. NAJMI WAZIRI JJ. Appellant Through: Sh. Dileep Shivpuri, Sr. Standing Counsel, Sh. Sanjay Kumar, Jr. Standing Counsel and Sh. Vikrant. A. Maheshwari, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If M/s. Citiland Commercial Credits and M/s. Bigg Investment are in lending business, then why interest was not charged on the advances given to the assessee company, this itself goes against the assessee's contention of the company under consideration is in investment and finance. As all the conditions mentioned in section 2(22)(e) are met, I hold that it is a clear case of deemed dividend and therefore, an amount of ₹ 12,25,055/- is added in the hands of the assessee and taxed. In the case of M/s. Bigg Investment similar conditions are existed in the case of M/s. Citiland Commercial Credits Ltd are existed. Therefore, I hold that it is a deemed dividend case and therefore an addition of ₹ 7,40,988/- is made in the hands of the assessee and taxed accordingly. (Addition: ₹ 12,25,055/-) 2. Disallowance u/s 14A:- During the year, assessee has shown turnover of ₹ 15,86,01,692.73. On further scrutiny of the record, it is found that sales income at as net ₹ 52,82,6042/- and goods processing charges sum of ₹ 10,57,57,650/-. The above facts reveals that assessee is doing manufacturing activity to other than self. In addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations are as follows: 4.4 In the proceedings before me, appellant was again asked to explain the basis for computing the disallowance u/s 14A at ₹ 7,50,000/-. It has been argued for the appellant that earning of dividend income and tax free interest income did not require any extra efforts or substantial expenses, other than the efforts supervision of the banking section. That it had accordingly debited part of the salary of Director Shri K.S. Dhingra (who was looking after the banking section, among other work) apart from debiting the full salary of the banking officials Shri K.S. Nair and Shri Tejinder Singh. That other expenses such as telephone, petrol, printing stationery had also been debited on estimate basis. 4.5 I have considered the reasons for disallowance, the method of computation adopted by the Assessing Ofticer and the various submissions made by the appellant in this regard. I have also gone through the order of the ITAT in appellant's own case, vide ITA Nos.2686/De1/2005 2006/Del/2006 for A. Yrs. 200102, 2002-03 2003-04. Vide para 10 the ITAT has observed as under: We have considered the rival contentions. In view of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the AO can proceed to make an independent determination of the disallowance under Rule 8D read with Section 14(2) after recording his satisfaction about the amount and the reasons thereof proferred by the assessee voluntarily under Section 14A. The relevant observations of this Court are as follows: 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 Officer is in issue, and such question of satisfaction is with reference to the accounts. 19. However, the decisions relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee would succeed and the appeal should be dismissed. 6. It is urged on behalf of the revenue by Sh. Dileep Shivpuri, Sr. Standing Counsel that the AO s order clearly contemplates his application of mind which is reflected in the computation and that if there was any formal inadequacy in the expression of satisfaction, that was secured in the appellate orders of the Commissioner who clearly rejected the explanation given by the assessee. 7. Learned counsel for the assessee, on the other hand, urges that the ruling in Taikisha (supra) is categorical in that it is the AO s satisfaction, or in other words, the AO s reasons for rejection of the amounts offered which is crucial, and not a satisfaction made by an appellate authority. It is submitted that in this case, significantly even though the AO did not take into account the amount offered, it is evident from the facts that in the rectification order, he acknowledged that ₹ 7.5 lakhs had been offered as voluntary disallowance. Therefore, the question of rejection of that amount or seeking explanation did not arise. In fact, there was no opinion by the AO. 8. Section 14A reads as follows: Expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 14A(2). That apart, significantly, the question of applying the statutorily prescribed method would arise only and only if the AO expresses an opinion rejecting the assessee s methodology and the figure offered at the time of assessment. This is material because the jurisdiction to go into the method prescribed in the Rules arise only if the amounts the assessee offers does not have any realistic correlation with the tax exempt income. For instance, in a given case, if a tax exempt income is to the tune of ₹ 5 crores and the assessee is able to satisfy that expenditure relatable to that income or the reasonable nexus to such income is ₹ 25 lakhs, there has to be strong reasons why the said amount of ₹ 25 lakhs are to be rejected. In other words, the opinion of the assessing officer in the latter part [of Section 14A(2)] is to be based upon an appraisal of objective material relating to the assessee s voluntary disallowance of amount/amounts. Not only that, if in the course of assessment, the AO enquires from the assessee about the amounts spent, which are to be disallowed, and the assessee in fact discloses a larger amount (than the one given in the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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