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TMI Blog2021 (8) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... nce under Sec. 14A that was offered by the assessee in its return of income could not have dislodged and substituted the same by an amount that was computed by him by triggering the mechanism provided in Rule 8. The material aspect, viz. validity of the disallowance made by the A.O as per the mechanism provided in Rule 8D without recording of an objective satisfaction with regard to the incorrectness of the suo-motto claim of disallowance that was offered by the assessee u/s 14A of the Act, we find, despite having been specifically raised by the assessee before him was however not addressed and therein answered by the CIT(A) in the right perspective We are of the considered view, that as the A.O having regard to the accounts of the assessee, as were placed before him, had failed to record his dissatisfaction as regards the correctness of the suo motto disallowance that was offered by it under Sec. 14A in its return of income, therefore, he could not have validly resorted to sub-section (2) and (3) of Sec. 14A and computed the said disallowance as per the mechanism contemplated in Rule 8D. Accordingly, not being persuaded to accept the view taken by the CIT(A), we herein set-aside h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lo the above, the Ld. CIT(A) erred in confirming the action of the learned Assessing Officer of reckoning investments in Gold Bar for the purpose of computing average value of investments in terms of Sec. 14A r.w.r 8D(2) and doing so is wrong and contrary to the provisions of the Income Tax Act,1961 and the Rules made thereunder, 1.(f) Without prejudice to the above, the Ld. CTT(A) ought to have not reckoned those investments which have not generated any exempt income for the purpose of calculating average value of investments in terms of section 14A r.w.r. 8D(2) and not doing so H wrong and contrary to the provisions of the Act, and the Rules made there under. The appellant craves leave to add, amend, alter, modify and/or delete any of the above grounds of appeal on or before the date of hearing." 2. Briefly stated, the assessee company which is engaged in the business of merchant banking, underwriting, project financing etc. had e-filed its return of income for A.Y. 2013-14 on 26.09.2013, declaring a total loss of ₹ 57,04,980/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the ld. A.R had relied on the judgments of the Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC) and Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC). Also, support was drawn by the ld. A.R from a host of judicial pronouncements to which our attention was drawn. Alternatively, it was submitted by the ld. A.R that as the assessee had sufficient own funds and interest free funds amounting to ₹ 10.93 crores, viz. (i). Share capital of ₹ 7.95 crore; and (ii). Reserves & Surplus of ₹ 2.98 crore to make investments in the exempt income yielding shares of ₹ 7.44 crores, therefore, in the backdrop of the presumption that in case of availability of mixed funds the assessee would have utilized such interest free funds for making the aforesaid investments, no disallowance qua the interest expenditure under Sec. 14A r.w Rule 8D(2)(ii) could have validly been made. In support of his aforesaid contention the ld. A.R had relied on the judgments of the Hon'ble High Court of Bombay in the case of viz. (i). CIT Vs. Reliance Utilities and Power Ltd. (2009) 178 Taxman 135 (Bom); and (ii). HDFC Bank L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce as per the mechanism provided in Rule 8D. As is discernible from the assessment order, the A.O had most arbitrarily brushed aside the aforesaid details that were filed by the assessee with him in support of its claim of disallowance u/s 14A of the Act. As such, the A.O without recording his satisfaction that having regard to the accounts of the assessee as were placed before him, it was not possible for him to generate the requisite satisfaction with regard to the correctness of the assessee's claim of disallowance u/s 14A, had in a mechanical manner rejected the same and substituted it by the amount that was computed by him by triggering the mechanism provided in Rule 8D. In our considered view, the A.O without recording his dissatisfaction as regards the correctness of the assessee's claim of disallowance u/s 14A of the Act could not have validly resorted to and substituted the said disallowance as per Sec. 14A(2) and (3) r.w Rule 8D. Our aforesaid view is supported by the judgment of the Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Limited Vs. DCIT (2017) 394 ITR 449 (SC). In its said order, it was observed by the Hon'ble Apex Court that an A.O re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim for disallowance u/s 14A of the Act, had wrongly assumed jurisdiction and substituted the same by the amount of disallowance that was computed by him as per the methodology prescribed in Rule 8D. As is discernible from the assessment order, the assessee's claim for disallowance u/s 14A of ₹ 27,382/- that was offered in its return of income was rejected by the A.O for two fold reasons, viz. (i). that as per the CBDT circular No. 5/2014, dated 11.02.2014 disallowance u/s 14A qua the exempt income yielding securities held by an assessee had to be worked out irrespective of the fact as to whether or not the assessee had earned any exempt income during the year; and (ii). that as held by the Hon'ble High Court of Bombay in the case of Godrej & Boyce Manufacturing Co. Ltd. in Writ Petition No. 785 of 2010 in ITXA 626/10 and the order of the ITAT, Mumbai in Daga Capital Management Pvt. Ltd., the provisions of sub-section (2) and (3) of Sec. 14A were constitutionally valid and would be applicable w.e.f A.Y 2008-09. Apart from that, it was observed by the A.O that the assesee's claim of not having utilized any part of the borrowed funds for making non-current investments was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d though dealt with the various other facets of the disallowance u/s 14A, viz. (i). that there was no exception as regards computing the disallowance u/s 14A with respect to investments made by an assessee by way of strategic investments or held as stock-in-trade; (ii). that the disallowance u/s 14A cannot exceed the amount of exempt income; and (iii). that as to whether or not the investments that had not yielded any exempt income were to be considered for the purpose of computing the disallowance as per the methodology contemplated in Rule 8D; however, the aforesaid material aspect, viz. validity of the disallowance made by the A.O as per the mechanism provided in Rule 8D without recording of an objective satisfaction with regard to the incorrectness of the suo-motto claim of disallowance that was offered by the assessee u/s 14A of the Act, we find, despite having been specifically raised by the assessee before him was however not addressed and therein answered by the CIT(A) in the right perspective. Be that as it may, we are of the considered view, that as the A.O having regard to the accounts of the assessee, as were placed before him, had failed to record his dissatisfaction a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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