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TMI Blog2022 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Moonstar Securities Trading and Finance Co. (P) Ltd [ 2018 (8) TMI 1151 - DELHI HIGH COURT] and PCIT vs. Keshav Power Ltd. [ 2018 (11) TMI 645 - DELHI HIGH COURT] as well as the Hon ble Bombay High Court in the case of Pr.CIT vs. Reliance Capital Asset Management Ltd [ 2017 (10) TMI 177 - BOMBAY HIGH COURT] is squarely applicable. Therefore, we hold that the disallowance of Rs.1,20,60,460/- as made by the AO as confirmed by the CIT(A) is incorrect in law, as the AO had failed to record the satisfaction as envisaged u/s 14A(2). Thus, the grounds of appeal no.1 and 4 stand allowed. Deduction u/s 10B - decision of CIT(A) in holding that the assessee company is not entitled to deduction u/s 10B for want of Board s approval as envisaged under Explanation to sub-section (2) of section 10B - HELD THAT:- This issue was decided by this Tribunal in assessee s own case for assessment year 2010-11 [ 2022 (10) TMI 1 - ITAT PUNE] in favour of assessee company. The ld. CIT-DR had not made out case before us to take different view. Respectfully, following the decision of the Tribunal in assessee s own case (supra), we hold that the assessee company is entitled for deduction u/s 10B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction claimed by the Appellant under section 10B of the Act. 5. Each one of the above grounds of appeal is without prejudice to the other. 4. Briefly, the facts of the case are as under: The assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of development and sale of software development services to subsidiary HSBC group. The Return of Income for the assessment year 2011-12 was filed on 25.11.2011 declaring total income of Rs.31,99,35,403/-. The assessee company also reported international transactions in Form 3CEB. On noticing the above international transactions, the AO referred the matter to the Transfer Pricing Officer (TPO) u/s 92CA for the purpose of benchmarking the above international transactions. The TPO vide order dated 30.09.2014 passed u/s 92CA(3) held that the international transactions of assessee company with its AE are at arm's length price and suggested no TP adjustment. On receipt of the order u/s 92CA, the AO completed the assessment u/s 143(3) vide order dated 30.03.2015 at a total income of Rs.146,32,01,943/-. While doing so, the AO made disallowance u/s 14A read with ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company offered disallowance on ad-hoc basis and unable to substantiate the contention and the fact that the assessee had himself offered disallowance goes to prove that the assessee had incurred expenditure to earn the exempt income. 8. The ld. AR contended before us that the AO cannot embark upon the provisions of section 14A r.w.s. 14A(2) without recording satisfaction as to how the claim of assessee that an amount of Rs.15,33,215/- is only incurred to earn the exempt income is incorrect. In support of this proposition, the ld. AR relied on the decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC), the Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT and Another (2010) 328 ITR 81 (Bom) and the Hon ble Supreme Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. Dy. CIT (2017) 394 ITR 449 (SC). The ld. AR further contended that the observation made by the AO vide para 7.6 of the assessment order does not amount to the satisfaction as envisaged under the provisions of sub-section (2) of section 14 and thus, ld. AR submits that the AO was not justified in making further disallowance u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t specifically record that he is not satisfied with the correctness of the assessee's claim. The fact that the CIT(A) and ITAT were not satisfied with the assessee's disallowance and enhanced it does not mean that Rule 8D becomes applicable and the disallowance should be computed as per the prescribed formula. 12. The similar view was taken by the Hon ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd., 370 ITR 338 (Del) and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. In the present case, the AO vide para 7.6 merely observed that the assessee company made substantial investments in mutual funds and therefore, incurred substantial expenditure to earn the exempt income and in the circumstances, he was of the opinion that Rule 8D has to be applied. Therefore, the question that comes up for consideration before us is whether the above observation made by the AO amounts to satisfaction as envisaged u/s 14A(2). It is a settled position of law that the satisfaction recorded by the AO should be based on the objective material and cannot be subjective. From mere reading of para 7.6, it is clear that the AO has not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Rule 8D are applicable as there is no other method but to apply rule 8D to calculate the disallowance. The Appellant objects to the above observations made by the learned CIT(A). 3. Without prejudice to the above grounds, the learned CIT(A) erred in not dealing with the alternate ground of appeal [ground no. 6 before CIT(A)] filed by the Appellant praying that the amount of expenditure disallowed under section 14A of the Act should be restricted to the exempt income earned by the Appellant. The ground no.6 before the CIT(A) reads as under: Without prejudice to the above, the learned DCIT erred in not appreciating that the amount of expenditure disallowed under section 14A of the Act cannot be higher than the amount of exempt income earned by the Appellant. 4. Each one of the above grounds of appeal is without prejudice to the other. 17. Briefly, the facts of the case are as under: The assessee is a company incorporated as a private limited company. The assessee company undertakes high quality value add IT services, acts as an in-house software development centre and develops IT Solutions for HSBC group companies worldwide. The return of income f ..... 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