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2020 (4) TMI 52 - ITAT MUMBAIDisallowance u/s 14A - Non recording of satisfaction - suo moto disallowance by assessee - as submitted by the assessee that no part of the interest bearing funds were utilised for the purpose of making investments in the exempt income yielding shares, also by it that a fair disallowance of the proportionate administrative expenses were already offered in the return of income - HELD THAT:- As decided in GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR. [2017 (5) TMI 403 - SUPREME COURT] it is only after recording of such satisfaction that the A.O can take recourse to the provisions of Sec.14A(2) and (3) r.w Rule 8D of the Rules. Although, we are in agreement with the claim of the ld. A.R that in the absence of recording of the requisite satisfaction as regards the correctness of an assesse’s claim of disallowance under Sec.14A, the A.O is divested of his jurisdiction to dislodge the suo-moto disallowance made by the assessee under Sec. 14A of the Act, but then, we find that there is no such infraction of the said statutory requirement by the A.O in the case before us. As is discernible from the assessment order, the A.O had after necessary deliberations observed that with reference to the accounts of the assessee, he was not satisfied with the correctness of its claim as regards the expenses which were attributed to earning of the income not forming part of the assesse’s total income. Accordingly, we are of the considered view that the statutory requirement of arriving at a satisfaction by the A.O, as regards the correctness of the assesse’s claim of disallowance under Sec. 14A can safely be held to have been satisfied on his part. As such, we are unable to persuade ourselves to subscribe to the claim of the ld. A.R that the A.O had without arriving at a satisfaction as regards the incorrectness of the claim of the disallowance under Sec. 14A of the assessee, disallowed the same by taking recourse to the provisions of Sec. 14A(2) and (3) r.w. Rule 8D. We find substantial force in the claim of the ld. A.R that for the purpose of computing the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) only those investments are to be considered for the purpose of computing the “average value” of such investments which had yielded exempt income during the year under consideration. It is the claim of the ld. A.R that the A.O while computing the disallowance under Sec. 14A r.w Rule 8D(2)(iii) had worked out the “average value” of the investments that also included certain investments which had not yielded any exempt income during the year under consideration. There is substantial force in the aforesaid claim of the ld. A.R that the investments which had not yielded any exempt income during the year under consideration ought to have been excluded for the purpose of computing the “average value” of the investments while computing the disallowance under Rule 8D(2)(iii). Our aforesaid view is fortified by the order of the ‘Special bench’ of the ITAT, Delhi in the case of ACIT Vs. Vireet Investments Pvt. ltd. [2017 (6) TMI 1124 - ITAT DELHI] Accordingly, we restrict the disallowance under Sec. 14A r.w.Rule 8D(2)(iii) to the aforesaid amount of ₹ 2,13,730/-. As such, the disallowance under Sec. 14A r.w Rule 8D is restricted to an amount of ₹ 2,31,984/- viz. (i) U/rule 8D(2)(i): ₹ 18,254/-; and (ii) U/rule 8D(2)(iii): ₹ 2,13,730/-. Addition of the disallowance worked out under Sec. 14A r.w.Rule 8D for the purpose of computing the ‘book profit’ under Sec.115JB - HELD THAT:- A.O for the purpose of computing the ‘book profit’ under Sec. 115JB had made an addition of the disallowance of ₹ 10,94,782/- that was worked out by him under Sec. 14A r.w Rule 8D. We are unable to persuade ourselves to subscribe to the computing of the ‘book profit’ under Sec. 115JB by the A.O. As per the order of the ‘Special bench’ of ITAT, Delhi in the case of ACIT Vs. Vireet Investments Pvt. ltd. [2017 (6) TMI 1124 - ITAT DELHI] the computation under clause (f) of Explanation 1 to Sec. 115JB (2) is to be made without resorting to the computation as contemplated under Sec. 14A r.w Rule 8D. Accordingly, on the basis of our aforesaid observations we vacate the addition made by the A.O under Sec. 14A r.w Rule 8D for the purpose of computing the ‘book profit’ under Sec. 115JB of the Act. Order passed CIT(A) is modified in terms of our aforesaid observations.
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