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TMI Blog2022 (8) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rule BD(2)(iii) 3. That Ld Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi was arbitrary and unjustified in confirming the addition of Rs. 97,133/- made by the Ld Assessing Officer without appreciating the facts that the expenses incurred were quite fair & reasonable looking to the nature & volumes of business & no disallowance out of Salary & wages expenses was called for. 4. Because various adverse observations and allegations made by the lower authorities are contrary to the facts, material & evidences available on record. 5. Because the order of Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi is against the principle of natural justice erroneous and not tenable in law and on facts. 6. Because the appellant craves leave to add, amend, delete modify and of the grounds of appeal till the final date of hearing and disposal of appeal." 2. The ld. AR at the outset submitted that the Assessing Officer had made disallowance u/s. 14A of the Act on account of interest and on account of administrative expenses amounting to Rs.4,21,463/- as per the provisions of Rule 8D and on appeal before ld. CIT(A), the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced complete books of accounts and vouchers in support of the expenses. The ld. AR further submitted that on appeal before ld. CIT(A), the ld. CIT(A) has restricted the disallowance equivalent to 50% of the disallowance made by Assessing Officer which again is on adhoc basis and therefore, it was argued that since the expenses were incurred for the purpose of business, therefore sustenance of disallowance by ld. CIT(A) is not justified. 4. The ld. DR, on the other hand, regarding disallowance u/s.14A submitted that as per the provisions of Section 14A, the disallowance as per Rule 8D has to be made if there is exempt income and there is no denial that there was no exempt income and therefore the ld. CIT(A) has rightly upheld the disallowance. 5. As regards the disallowance out of salary and wages, the ld. DR invited our attention to copy of assessment order where the Assessing Officer has specifically mentioned that there were self made vouchers and these vouchers were not open to verification and in some cases vouchers could not be produced by the assessee and therefore the Assessing Officer had rightly made a nominal disallowance and which again has been partly deleted by ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular income. Since, there is mixed fund flow, provisions of Sec. 14A read with Rule 8D are attracted and calculation of disallowance of interest have to be made in accordance with the said rule. With regard to the interest on such investments, e amount would be computed as provisions of Sec. 14A read with Rule 8D (2)(ii), the details of which are as under: a) The amount of expenditure by way of interest other than the amount of interest included in the amount of expenditure directly relating to income which does not form part of total income- A- Rs. 34,83,375/- b) The average of value of investment, income from which does not form part of the total income as appearing in the Balance Sheet of the assessee on the first day and the last day of the previous year- B- Rs. 1,90,00,000/- (Rs. 1,90,00,000 + Rs. 1,90,00,000/2). c) The average of total assets as appearing the Balance Sheet of the assessee on the first day and the last day of the previous year- C- Rs. 20,27,27,098/- (Rs.25,05,11,396 + Rs.15,49,42,800/2). The total amount of expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt as per Rule 8D(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee in relation to income which does not form part of the total income under the Act. Sub-section (2) of section 14A of the Act prescribes that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with such method as may be prescribed, such prescribed method being contained in rule 8D of the Rules. However, the aforesaid empowerment of the Assessing Officer to invoke application of rule 8D of the Rules is super scribed by a condition contained in sub-section (2) of section 14A of the Act which is to the effect that the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which does not form part of the total income. Therefore, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because assessee has earned an exempt income. The invoking of rule 8D of the Rules is permissible only when the Assessing Officer records the satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income which did not form part of the total income, there was a considerable dispute between taxpayers and the Department on the method of determining such expenditure. It was in this background that sub- section (2) was inserted so as to provide a uniform method applicable where the Assessing Officer is not satisfied with the correctness of the claim of the assessee. Sub-section (3) clarifies that the application of the method would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of non-taxable income. 71. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. When a statute postulates the satisfaction of the Assessing Officer "Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-section (3) applies to cases where the assessee asserts that no expenditure has been incurred in relation to such exempt income. Explaining further, as per the Hon'ble High Court in both the cases the recourse to rule 8D of the Rules is possible only if the Assessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. 10. In the aforesaid background, now, we may examine the facts of the present case. In this case, assessee has earned by way of dividends a sum of Rs.5,45,58,685/-, which is exempt u/s 10(38) of the Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at Rs.5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing Officer c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered to be objective satisfaction by the Tribunal. In the instant case, the Assessing Officer has simply recorded that the contention of the assessee is not acceptable. Therefore, in the light of the aforesaid orders of the Tribunal and other judicial pronouncements, we are of the view that the Assessing Officer has not recorded any objective satisfaction with regard to the correctness of the claim of the assessee. 14. In the case of DCIT vs. M/s Jindal Photo Limited in I.T.A. No. 814/Del/2011, the Delhi Bench of the Tribunal has also expressed similar view, in which it has been held that satisfaction of the Assessing Officer is pre-requisite to invoke the provisions of Rule 8D. Therefore, in the absence of objective satisfaction by the Assessing Officer, the disallowance made under rule 8D is not sustainable in the eyes of law. Moreover, the investment was made in the case of subsidiary companies, therefore, in those cases disallowance under section 1A(2) of the Act cannot be worked out unless and until it is established that certain expenditures are incurred by the assessee in these investments. 15. Keeping in view the totality of the facts and circumstances of the case, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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