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TMI Blog2017 (6) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... venue by: Sh. HK Chadhoury, CIT DR ORDER Per Prashant Maharishi, A. M. 1. These are the appeals filed by the assessee against the order of the ld CIT(A)-1, New Delhi dated 02.01.2013 for the Assessment Year 2008-09, 2009-10 and 2010-11. 2. The assessee has raised the following grounds of appeal in ITA No. 621/Del/2013:- 1. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in passing the order u/s 153A of the Income Tax Act, 1961 by not appreciating the facts that the order passed by the Ld Assessing Officer was without jurisdiction and bad in law as the jurisdiction u/s 153A was vitiated. 2. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining addition of ₹ 2,43,40,709/- under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 115 JB of the Income Tax Act, 1961. 4. The assessee has raised the following grounds of appeal in ITA No. 623/Del/2013:- 1. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining the addition of ₹ 13,56,44,550/- under the provisions of Section 14A of the Income Tax Act, 1961 read together with Rule 8D of the Income Tax Rules, 1962 on account of expenses incurred for earning exempt income. 2. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining the addition of ₹ 13,56,44,550/- on account of expenditure on earning of exempt income to the Book Profit for the purpose of computation of MAT liability u/s 115JB of the Income Tax Act, 1961. 5. Firstly we take up the appeal for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance u/s 14A of the Act. Further, no incriminating material was shown to us and the ld AO which could have resulted into disallowance u/s 14A of the Act pointed none out. in view of this respectfully following the decision of the Hon'ble Delhi High Court we reverse the finding of ld CIT(A) and direct AO to delete the disallowance u/s 14A of the Act of ₹ 24340709/-. In view of this appeal NO. 621/Del/2013 for AY 2008-09 filed by the assessee is allowed. 9. Now we come to the appeal of the assessee for AY 2009-10 in ITA No. 622/Del/2013. The order is also passed u/s 153A of the Income Tax Act however, at the time of search this assessment was not completed and hence abated. The return of income was filed by assessee at loss of ₹ 63391883/- on 27.11.2010 and assessee has earned dividend income of ₹ 5128390/- and made disallowance u/s 14A of ₹ 1925142/-. The ld Assessing Officer applying the decision of the coordinate bench in 317 ITR 86 computed the disallowance under Rule 8D of ₹ 30922206/- and made net disallowance of ₹ 28997064/-. Consequently, the assessment u/s 153A read with Section 143(3) of the Act was passed on 30.12.2011 making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the asses see 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 sub-section (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to determine the amount of expenditure in relation to income not includable in the total income in the manner indicated in sub-rule (2) of rule 8D of the said Rules. It is, therefore, clear that determination of the amount of expen diture in relation 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 tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing 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 mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which 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 Commissioner of Income-tax (Appeals) 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 volunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in sub-section (2) of section 14A of the Act read with sub-rule (1) of rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub-rule (2), without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub-rule (2) of rule 8D of the Rules and made the re-computation. Therefore, the respondent-assessee would succeed and the appeals should be dismissed. 12. Therefore, in view of the above decision we are of the opinion that in absence of any satisfaction recorded by the ld AO as provided u/s 14A(2) of the Act the disallowance u/s 14A applying provisions of Rule 8D cannot be sustained. In view of this we reverse the order of the ld CIT(A) we direct the ld Assessing Officer to delete the disallowance of ₹ 28997064/-. In the result, the appeal filed by the assessee is allowed. 13. Now we come to the appeal of the assessee for the AY 20010-11 in ITA No. 623/Del/2013 for which the assessee has filed return of income on 29.09.2010 declaring Nil income. During the year the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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