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TMI Blog2020 (8) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (Appeals) has erred in sustaining the disallowance failing to appreciate that while making the aforesaid disallowance learned Assistant Commissioner of Income Tax has not established the nexus between the specific expenditure and the income which does not form part of the total income despite the fact that the appellant has specifically submitted that no expenditure has been earned for earning the exempt income. 2. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining ad-hoc disallowance of Rs. 3,95, 539/- on account of alleged personal expenditure with respect to telephone, vehicle, depreciation and travelling expense. 2.1 That in doing so, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that requisite documents/evidences were filed and explanation were tendered before the(learned ACIT explaining the nature and incurrence of aforesaid expenditures, but the learned ACIT based his decision purely on suspicion, surmises and conjectures and as such, the disallowance so sustained, is highly unjust and untenable in law. 3. That the learned Commissioner of Income Tax (Appeals) has g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed in the books of accounts for earning the said exempted income. The Assessing Officer was not satisfied with this claim of the assessee and accordingly, he invoked rule 8D of the rules and made addition for 0.5% of the average value of the investment towards administrative expenses for earning exempt income in terms of rule 8D(2)(iii) of the rules. The relevant finding of the Assessing Officer is reproduced as under: "3.7 The Assessing Officer has to adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. In the instant case, the assessee contended that it had not incurred any expenditure for earning the exempt income and that no disallowance was warrant* d. The contention of the assessee is not acceptable in view of the fact that the insertion of Section 14A was curative and declaratory. The assessee has not provided any separate account for earning of exempt income. The assessee has made investments for earning exempt income and managing such a large portfolio entail expenses right from diversion of manpower/staff for indulging in in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts because no expense was actually incurred. 6.6 It is also noted that it is not the case of the revenue that AO is not required to be non-satisfied regarding correctness of expenses claimed by the AO. However, the nonsatisfaction can be inferred from facts and circumstances of the case. If non-satisfaction has been recorded, it becomes primary basis of showing nonsatisfaction. In this case the very fact that assessee claims that no expenditure has been made to earn exempt income, indicates that any person of ordinary intelligence would be non-satisfied about correctness of appellant's claim because at least some expenses would be incurred indirectly in process of administration, supervision, stationary and accounting etc. in relation to the investment and dividend there-from (may be nil in a particular year). 6.7 The onus is upon the appellant to prove that there was no non-satisfaction of the AO because AO has proceeded to determine the expenditure as per Rule 8D which indicates non-satisfaction of the AO. Since, it is the appellant who alleges the apparent is not real, therefore, the onus lies on the appellant to prove non-satisfaction of the AO was not there. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court referred to various decision of other High Courts including the decisions of the Punjab and Haryana High Court in case of CIT, Faridabad vs Lakhani Marketing Inc., CIT Vs. Hero Cycles Ltd ITA No.970/2008. decided on 02.04.2014, CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 which held that Section 14A cannot be invoked when no exempt income was earned. Hon ble Delhi High Court concurred with the ratio of the decisions mentioned therein. 6.12 It is noted that in this case, the following are the items of exempt income, i) Dividend income Rs. 10,87,838/-, ii) Interest income from tax free bonds Rs. 8,26,342/-, and iii) Exempt LTCG Rs. 39,36,670/- The AO has made disallowance of only Rs. 8,76,091/- which is less than the exempt income earned. Therefore, the ratios of above stated judgments are not applicable." 5.2 Before us, the Learned Counsel submitted that the dissatisfaction recorded by the Assessing Officer is identical to the dissatisfaction, which was recorded by the Assessing Officer in assessment year 2012-13. The Tribunal in assessment year 2012- 13, follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributed to the earning of exempt income. 15. The addition was challenged before Ld. CIT,(A). The written submission of the assessee is reproduced in the appellate order in which it was stated that AO has not specified or pointed out any expenses, whatsoever claimed by assessee for earning the said dividend income. The assessee relied upon the decisions of Delhi High Court in the cases of CIT vs. Taikisha Engineering India Ltd. 275 CTR (Dei.) 316 and Joint investments (P) Ltd. Vs. CIT 275 CTR 471. The Ld. CIT (A), however confirm the addition and dismiss the appeal of assessee. 16. After considering the rival submissions, we are of the view that addition is wholly unjustified. Ld. Counsel for assessee submitted that similar issue was considered by IT AT Delhi V Bench in the case of assessee for AY 2009-10 vide order dated 15.11.2018 (supra) and similar addition has been deleted. The findings of the Tribunal in para 8 of the order above is reproduced as under: "8. We nave gene through the fndings of the Ld. Assessing Officer on this aspect. Ld. Assessing Office, recorded that the assessee made heavy investments for earning of exempt income and being a busy professional, he requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his score also." Copy of the order is provided to the La. DR who did not dispute fhe some. 17. Considering the facts of the case, in the light of the findings of theTribunal in AY 2009-10 (supra), we are of the view that issue is covered in favour of the assessee by above order of the Tribunal in the case of the same assessee. Following the reasons for the decision of the same, we set aside the orders of the authorities below and delete the addition. 8. Accordingly, considering the above facts and in the light of findings of Tribunal for A.Y. 2011-12 and 2009-10 we are of the view that the issue is covered in favour of the assessee, therefore, the disallowance made by the AO are accordingly deleted, this Ground No.l of assessee appeal is accordingly allowed." 5.3 The section 14A(2) of the Act has provided recording of dissatisfaction before invoking Rule 8D as under: "Expenditure incurred in relation to income not includible in total income. 14A. (1) ...................... (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer observed expenses of Rs.49,61,348/- under various heads like vehicle running and maintenance ( Rs. 14,52,684/-); the depreciation on car (Rs. 12,68,630/-); telephone and telex expenses (Rs. 1,81,407/-); travelling expenses (Rs. 10,52,670) ; conveyance expenses (Rs. 4,45,346/-); Diwali expenses (Rs.1,81,230/-) and repair and maintenance expenses (Rs. 3,79,381/-). The Assessing Officer found that no logbook of the vehicle was maintained and the assessee could not produce evidences that the car was wholly and exclusively used for the purpose of the business. As possibility of personal use of the expenses was not ruled out, the Assessing Officer made disallowance of 10% of the above expenses, which was worked out to Rs.4,96, 135/-. Out of the disallowance of Rs.4,96,135/-, the assessee challenged disallowance of Rs.3,95,539/- before the CIT(A) and submitted that the disallowance may be restricted to 1/20th of the expenses on those account. The Learned CIT(A) held that some personal expenditure has been accepted by the assessee and thus held that although the appellant had shown nonsatisfaction on the estimate made by the Assessing Officer, however there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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