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TMI Blog2020 (2) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... he accounts maintained by the assessee and the nature of expenditure debited vis- -vis its co-relation with the earning of the exempt income. It is a well settled proposition in GODREJ BOYCE MANUFACTURING COMPANY [ 2017 (5) TMI 403 - SUPREME COURT] that satisfaction of the AO is mandatory before resorting to disallowance. Here in this case, as pointed out earlier there is no requisite satisfaction by the AO and he has mechanically applied rule 8D. Manner in which disallowance under Rule 8D(iii) has been made by the Assessing Officer is not called for and, accordingly, the disallowance made by the AO over and above the suo moto disallowance made by the assessee is deleted. Appeal of the assessee is allowed. - I.T.A No.2343/Del/2017 - - - Dated:- 3-2-2020 - Shri Amit Shukla, Judicial Member And Shri O.P. Meena, Accountant Member For the Assessee : Shri K.M. Gupta, Adv. For the Revenue : Shri S.S. Rana, CIT (DR) ORDER PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 20.01.2017 passed by the Ld. CIT(Appeals)-15, Delhi for the quantum of assessment passed u/s 143(3) of the Act fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 16,95,69,008/-,the working of which has been incorporated at pages 2 3 of the impugned assessment order. The Ld. AO after detailed discussion, held that the working of the disallowance made by the assessee as per Rule 8D(iii) at ₹ 3,53,49,023/- is less than 0.5% of the average value of the investment and the correct figure should be ₹ 5,79,62,456/-. He, thus, calculated the disallowance as per Rule 8D(2) at ₹ 19,21,82,442/- in the following manner: Clause Particular Calculation Amount i. Expenditure directly related to exempt income ₹ 1,45,69,045/- ₹ 1,45,69,045/- ii. Disallowance of interest expenditure: ₹ 12,92,60,080/- A. Interest expenditur e incurred during the year. B. Average Value of Investment. (11933238158 + 11251744332)/2 =₹ 11,59,24,91,245/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure which can be held to be attributable in relation to the earning of dividend income; the working of the same has been placed in the PB at page 26. He further submitted that the methodology adopted by the assessee in bifurcating the streams of income and cost has been accepted by the Department in all the years, whereby the assessee bifurcated the total personal and administrative expenses incurred during the year against the operative income and non-operative income on reasonable basis. Similar basis of identification and bifurcation of expenses were adopted in the AY 2011-12 and the similar computation of the assessee has been accepted by the AO in the order passed u/s 143(3) without any adverse inference on the said methodology. The AO without going through the nature of expenditure debited and having regard to the accounts has mechanically applied Rule 8D (2)(iii) @ 0.5%. He, further, submitted that there is no satisfaction by the AO on the disallowance made by the assessee and in a very mechanical manner he has provided to make the disallowance. 6. On the other hand, Ld. CIT (DR) submitted that AO has recorded the satisfaction in the following manner as per para 3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 67,928,110 419,042,464 Less: Expenses for Consultancy Others 54,223,779 364,818,685 Less: Expenses which is disallowed as per provisions of PGBP Depreciation 170,827 Donation 1,550,001 Provisions for diminution in the value of Investment 121,500,010 RBI Penalty Paid 1,000,000 Provision for Leave Encashment 207,649 IPO Expenses 75,212,296 Gratuity Provisions 568,799 Interest paid on TDS - 200,209,582 164,609,104 Less: Interest Expenses un allocated 129,260,080 35,349,023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he formula prescribed under Rule 8D or in the best judgment of the AO, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 9. Here in this case, as pointed out earlier there is no requisite satisfaction by the AO and he has mechanically applied rule 8D. Under these facts and circumstances as discussed above, the manner in which disallowance under Rule 8D(iii) has been made by the Assessing Officer is not called for and, accordingly, the disallowance made by the AO over and above the suo moto disallowance made by the assessee is deleted. 10. In the result, the appeal of the assessee is allowed. Other grounds are general in nature and hence, the same are not adjudicated upon. 11. In the result, the appeal of assessee is allowed. Order pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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