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TMI Blog2017 (6) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds: "1. The Ld.CIT(A) erred in confirming the disallowance u/s 14A of Rs. 1,46,964/-. 2. The Ld.CIT(A) failed to appreciate that the assessee had not incurred any expenditure to earn the exempt income and in the absence of any proper satisfaction recorded by the learned AO no disallowance u/s 14A r.w.r 8D could be made in the hands of the assessee. Assessee also filed additional ground, which reads as under : "The assessee submits that without prejudice to its contention that no disallowance u/s 14A r.w.r. 8D is warranted, in the event, any disallowance is to be made, the investments made in national Housing Bank of Rs. 20,00,000/- and in Rural Electrification Co. Ltd. Of Rs. 30,00,000/- should be excluded from the computation of tax free investment while working out the disallowance u/s 14A r.w.r. 8D since the interest income thereon is taxable and not exempt from tax." 3. Before us, at the outset, Ld.A.R. submitted that though the assessee has raised various grounds but the sole controversy is with respect to disallowance of expenses u/s 14A r.w.r. 8D. 4. During the course of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he form of dividend from the investments made of Rs. 2.72 crores during the year under consideration. Thus, prima facie the disallowance made by the Assessing Officer has been rightly done u/s 14A r.w. Rule 8D(2)(iii). There cannot be any income without any kind of expenses or labour however small it can be and, therefore, the Assessing Officer was justified in calculating the disallowances on the exempted income. The dividend income may not involve separate/direct expenses but indirect expenses are there in purchasing those mutual funds and other administrative expenses in the earning of income. The appellant has undisputedly earned exempt income hence the sec 14A is applicable where it provides that no deduction by the assessee in respect of expenditure incurred by the assessee in relation to exempted income will be allowed. There are expenses incurred for earning the exempt income as well as earning of other incomes. 3.4.1. The section 14A does not take care of only direct expenses but indirect expenses are also to be allocated to the exempted income. In the case of ACIT Vs Champion Commercial Co. Ltd (2012) 139 ITO 108 (Kol) it was held that a disallowance u/s 14A can also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 626 becomes relevant wherein the assessee earned exempt dividend income. When the Assessing Officer found to be in order and accordingly considered this amount of disallowance. In this regard the decision of the Chennai ITAT in the case of DCIT Vs. Vintros & Co (2013) 141 ITD 626 becomes relevant wherein the assessee earned exempt dividend income. When the Assessing Officer invoked sec.14A, assessee itself worked out disallowance u/r 8D which was added to the total income. The tribunal held that since the assessee instead of challenging application of provision itself computed disallowance, it could not object to its addition to income. 3.5 In view of the above facts, the disallowance made by the Assessing Officer is liable to be upheld and grounds of appeal no.1 and 2 raised by the appellant are dismissed." Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us. 5. Before us, Ld.A.R. reiterated the submissions made before AO and Ld.CIT(A). He further submitted that during the year assessee had earned tax free dividend of Rs. 7,37,340/- from investments in mutual funds. He submitted that the dividend were received under re-investments scheme of mutual fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that no satisfaction has been recorded by the AO while disallowing the expense u/s 14A of the Act. On the issue of necessity of recording of satisfaction while disallowing expenses u/s 14A we have come across a recent decision rendered by Hon'ble Punjab and Haryana High Court in the case of Punjab Tractors Ltd., Vs. CIT reported in (2017) 393 ITR 223 (P&H) wherein Hon'ble High Court has held that AO must record satisfaction that claim regarding expenditure is not satisfactory. The relevant observations by Hon'ble High Court are reproduced hereunder : "11.Section 14A specifies the circumstances in which the Assessing Officer is entitled to determine the amount of expenditure incurred in relation to exempt income in accordance with such method as may be prescribed. The method prescribed is in rule 8D of the Income-tax Rules, 1962 which was introduced with effect from the assessment year 2008-09. The conditions specified in sub-sections (2) and (3) of section 14A must exist in order to entitle the Assessing Officer to invoke rule 8D. This is clear from the language of these sub-sections. Sub-section (2) provides that the Assessing Officer shall determine the amount of expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d January 27, 2015 in CIT Vs. Abhishek Industries Ltd. I T A. No. 320 of 2013- reported in [2016] 380 I1R 652 (P&H), where the Division Bench held (page 657) :- "Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax- free income. The satisfaction to be recorded must be based upon credible and relevant evidence." 21. The judgment in Maxopp Investment Ltd. (supra) also supports this view namely that the Assessing Officer must record reasons for not being satisfied with the correctness of the assessee' contentions with regard to the aspects mentioned in sub-sections (2) and (3) of section 14A. It is true that the Delhi High Court merely states that such rejection must be for dis-closed cogent reasons. The disclosure, however, can only be in writing. It can hardly be suggested that the disclosure remains in the Assessing Officer's mind. The assessee is entitled to test the basis of the rejection of his contentions. This can be done only if the Assessing Officer records his reasons for his not being satisfied in writing." We further find that the Co-ordinate Bench of the Tribunal, Pune in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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