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TMI Blog2022 (11) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... t out any error in the findings of the appellate authorities except to state that the disallowance offered by the Assessee should be accepted as it was done in AY 2008-09 and AY 2009-10 on the principle of consistency. In this regard, we observe that this Court in its decision for AY 2008-09 while setting aside the deletion under Section 14A has not upheld the self devised method adopted by Assessee for making the allowance but adjudicated on the failure of the AO to record his proper satisfaction before invoking Section 14A. We have already rejected the submission of application of principle of consistency and further, held that the disallowance offered by the Assessee in the assessment years under consideration being on an ad-hoc basis has been rightly rejected by the AO. We, therefore, do not find any reason to interfere with the said concurrent findings of the appellate authorities. A perusal of the record reveals that the AO has applied his mind to the controversy as he firstly examined accounts, secondly duly invited the reply of the Assessee to explain the basis of the disallowance offered by the Assessee and thirdly after examining the explanation of the Assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D(2)(iii) to Rs. 26.70 Lakhs. 2.2 The Income Tax Appellate Tribunal ( Tribunal ) relied upon the judgment of this Court in Assessee s own case for the AY 2010-11 to uphold the aforesaid disallowance under Rule 8D(2)(iii). However, the Tribunal modified the order of the CIT(A) to the extent it disallowed the value of Assessee s strategic investment in its subsidiaries for the purpose of computation of disallowance and added the same. The Tribunal held that the said investment held by the Assessee in the subsidiary company has to be considered for the purpose of disallowance, following the judgment of the Supreme Court in Maxopp Investment Ltd. vs. CIT, (2018) 402 ITR 640 (SC). The Tribunal concluded that the disallowance under this Rule works out at Rs. 55,12,500/-. The working of the said disallowance has been set out as under: - Particulars Investment as on 31.03.2011 (crores) Investment as on 31.03.2012 (crores) Average Investment (crores) Investments on which dividend income was received during the year. 117.75 102.75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Arguments of the Assessee 4. The arguments raised by the learned counsel for the Assessee are common for both the appeal(s) as the issues raised in the present appeal(s) are same. 4.1. The learned counsel for the Assessee states that the Tribunal erred in holding that the AO has duly recorded its proper satisfaction in terms of Section 14A(2) of the Act, without considering the submissions of the Assessee and the judgment of this Court in Assessee s own case for AY 2008-09 being H.T. Media Ltd. vs. Principal Commissioner of Income Tax, (2017) 399 ITR 576. He states that the facts and circumstances in AY 2008-09 were similar and this Court had in those proceedings held that the AO had not recorded proper satisfaction and therefore, the disallowance made by the AO was deleted. He states that the Tribunal erred in upholding the disallowance without appreciating that the AO has not recorded his satisfaction and therefore, the disallowance of Rs. 1,00,000/- in its ROI should have been accepted. He states that the Tribunal failed to consider the explanation submitted by the Assessee in its letter dated 10th December, 2014, along with the basis for determining the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to the record. The submission of the learned counsel for the Assessee that the issue of satisfaction for AYs 2010-11 and 2011-12 was remanded by ITAT to AO is also not borne out from the record. 7.1. On a perusal of the Tribunal s order, it is borne out that in the intervening assessment years i.e., AYs 2010-11 and 2011-12, the AO had similarly calculated the disallowance under Rule 8D(2)(iii), on account of administrative expenses incurred on earning of exempt income and the same was upheld by the Tribunal in its order dated 05th September, 2018. The method adopted by the Assessee for making suo moto disallowance was not accepted by the AO in the said assessment years and the AO proceeded to invoke Rule 8D(2)(iii) for determining the administrative expenses for disallowance. 7.2. For AYs 2010-11 and 2011-12, the ITAT in its order dated 05th September, 2018 upheld the satisfaction recorded by the AO with respect to the invocation of Section 14A of the Act read with Rule 8D(2)(iii). However, the ITAT observed that while computing the disallowance, the AO had not taken into consideration the amount of Rs.5,45,000/- disallowed by the Assessee. This finding of ITAT is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income derived from strategic investments, is hereby set aside. This appeal is partly allowed. (Emphasis supplied) 7.4. This Court in fact modified the order of remand and issued further directions to the AO for arriving at the value of average investment for applying the method under Rule 8D(2)(iii). The order of this Court proceeded on the premises that Section 14A of the Act, has been invoked after recording of proper satisfaction. 7.5. The contention sought to be raised by learned counsel for Assessee that the issue of satisfaction under Section 14A of the Act, was also remanded to the AO for AY 2010-11 is not borne out from the orders of the ITAT or this Court. The order dated 29th March, 2019, of this Court was passed in the presence of learned counsel for the Assessee, however, the Assessee had not raised any contention before this Court that the issue of proper satisfaction before invoking Section 14A is also an issue to be decided by the AO on remand. 7.6. With respect to AY 2011-12 as well, the ITAT upheld the invocation of Section 14A read with Rule 8D and remanded the matter to the AO for the purpose of calculating the value of average investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Rs. 1,00,000/- u/s 14A being expenses pertaining to the tax free income. During the assessment proceedings, the assessee company was asked to explain the basis of estimation of expenses at Rs. 1,00,000/pertaining to tax free income and as to why such disallowance may not be computed as per Rule 8D of I.T. Rules, 1962. In response, vide reply dated 10.12.2014, the assessee has submitted that no direct expense was incurred for earning of this dividend income however the disallowance of Rs. 1,00,000/- computed on estimation basis. [Emphasis supplied] 8.2. The Assessee filed its reply dated 10th December, 2014, to the said notice and stated that there was negligible cost incurred by the Assessee company on account of administrative expenses. The Assessee, however, stated that the company had offered a sum of Rs. 1,00,000/- by allocating the proportionate salary cost of corporate finance department executives in the ratio of exempt income to gross turnover ratio. In support of the said contention the Assessee also annexed to its letter, a computation explaining the method of cost allocation. The AO at paragraph 3.2 after duly considering the financial statements of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in its impugned order dated 26th August, 2021, for AY 2013-14 has returned a finding of fact that in the year under consideration there was churning and change in the investment portfolio of the Assessee, as the Assessee had sold some of its investments and made new investments. The Tribunal held that the decisions pertaining to selection of new investments and appropriate time for sale of existing investments would necessarily require application of mind and time by the management of the Assessee. The Tribunal, therefore, concluded that the claim that no expenditure had been incurred by the Assessee in the relevant assessment year was unacceptable. 8.7. The Tribunal in its impugned order dated 26th August, 2021, has also held that the Assessee s estimate of disallowance is contrary to its claim of no expenditure and it accordingly rejected the submissions of the Assessee and upheld the application of Rule 8D(2)(iii) by the AO and CIT(A). 8.8. The AO and the appellate authorities have, thus, concurrently found that the disallowance of expense relating to exempt income offered by the Assessee was not borne out from the records and no basis has been provided for ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Salary Cost of executives of Corporate Finance Department (A) 20,151,504 As per Annexure attached Exempt Income (B) 50,019,274 Dividend Income earned during FY 2011-12 Gross Turnover (C) 13,191,397,465 Revenue from Operations Proportionate cost allocated to exempt Income A*B/C 88,632 Say Rs. 1 Lakh (Emphasis supplied) 8.11. A perusal of the contents of the letter and the table calculating the disallowance, substantiate the finding of the AO and CIT(A) that the disallowance made by the Assessee is admittedly on an ad-hoc basis. The AO and CIT(A) rejected the method of apportionment offered by the Assessee having not found the same to be reasonable or satisfactory; the CIT (A) held the same to be guess estimate and the said finding has been upheld by the Tribunal. The Assessee in the letter has used the expression say Rs. , which substantiates the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, 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 14-A(2) and (3) read with rule 8-D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 10. As noted above, in the present case as well, a perusal of the record reveals that the AO has applied his mind to the controversy as he firstly examined accounts, secondly duly invited the reply of the Assessee to explain the basis of the disallowance offered by the Assessee and thirdly after examining the explanation of the Assessee has recorded its dissatisfaction after observing that the basis adopted by the Assessee for making such an estimate was unclear. The CIT(A) and ITAT, which are the fact finding authorities upon examination of record, have concurred with the said finding of diss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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