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TMI Blog2015 (9) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... have been allowed as deductible expenditure while computing STCG. 2. a) The CIT(A) erred in confirming the disallowance of Rs.ll,23,6261- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment activity giving rise to the exempted income. The Appellant submits that the Appellant has not incurred the expenditure exceeding Rs. 98,945/- attributable to investment activity giving rise to the exempted income and hence the disallowance U/S 14A of the Act shall be restricted to Rs. 98,945/- only. b) The CI(A) erred in confirming the disallowance u/s 14A of the I.T. Act by resorting to Rule 8D of the I.T. Rules inspite of the fact that the AO made the disallowance U/S 14A r.w. rule 8D without recording adequate reason for rejecting the submission of the Appellant. 3. The CIT(A) erred in confirming the ad hoc disallowance of Rs. 1,11,450/- being 5% of various expenses aggregating to Rs. 22,29,005/- debited to the Profit & Loss Ale as incurred for non business purpose. The Appellant submits that the expenses incurred are for business purpose and the hence the full amount shall be allowed as deductible business expenditure. 4. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh in the light of the additional evidence filed by the assessee. However, after Agreements, we find that a similar issue involving almost identical facts has already been examined by this Bench in the case of Devendra Motilal Kothari v. Den- (2011) 136 TTJ (Mumbai) 188 and the same has been decided against the assessee for the elaborate reasons which, as summarized in. the held portion, are extracted below: "The deduction on account of fees paid for PMS has been Claimed by the assessee as deduction In computing capital gains arising from sale of shares and securities. He/ however has failed to explain as to how the said fees could be considered as cost of acquisition of the shares and securities or the cost of any improvement thereto. He has also failed to explain as to how the said fees could be treated as expenditure incurred wholly and exclusively in connection with sale of shares and securities. On the other hand, the basis on which the said fees was paid by the assessee shows that it had no direct nexus with the purchases and sale of shares and as rightly contended by the Departmental Representative/ the said fees was payable by the assessee going by the basis thereof e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O rejecting the claim of the assesssee computed the disallowance under section 14A read with rule 8D at Rs. 11,23,626/-. The CIT(A) upheld the order of the AO. However, since the assessee had already disallowed Rs. 98,945/- the disallowance was restricted to Rs. 10,24,681/-. 11. The assessee is an appeal against the order of the CIT(A). The Ld. A.R. for the assessee pointed out that where the assessee had itself disallowed Rs. 98,945/-, the AO before applying provision of Rule 8D, had to record satisfaction that the disallowance made by the assessee was not correct and in the absence of any such satisfaction being recorded, provision of Rule 8D could not be applied. Reliance in this regard was placed upon the ratio laid down by the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Ltd. Vs. CIT 328 ITR 81 (Bom). Another contention raised by the assessee was that it had utilized the Portfolio Management Scheme Services for making the aforesaid investments and such expenses of Rs. 26,01,054/- stands disallowed in the hands of the assessee. Hence there was no merit in any further disallowance to be made under section 14A read with Rule 8D. 12. The Ld. D.R. for the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act, in accordance with such method as may be prescribed. It is further provided that if the AO having regard to the facts of the assessee, is not satisfied with the correctness of the claim of the assessee, in respect of such expenditure, in relation to income which do not form part of the total income, then such disallowance has to be worked out. In other words, before relying to the provisions of Rule 8D provided under the Income Tax Rules, which prescribes the method of calculating the expenditure relatable to the exempt income, which is to be disallowed in the hands of the assessee, there is another condition laid upon the AO. The AO has to first record his satisfaction that the claim of the assessee in respect of the expenditure relatable to exempt income is not correct and after recording such satisfaction the AO is to determine the amount of expenditure which is to be excluded while assessing the income in the hands of the assessee, which is exempt from the provisions of the Act. Such non-fulfillment of recording satisfaction in turn is held to vitiate the order of the AO in disallowing expenditure under the provisions of section 14A of the Act. 9. The Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and recording of reasons by the AO in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee; ............" 11. The Hon'ble Bombay High Court in Taikisha Engineering India Ltd. (supra) held as under: - "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee under section 14A of the Act was incorrect. A perusal of the assessment order reflects that no such dissatisfaction was recorded by the AO and in view thereof the provisions of section 14A(2) of the Act had not been applied and accordingly we find no merit in the disallowance made by the AO under section 14A(2) of the Act read with Rule 8D without recording dissatisfaction that the working made by the assessee vis-à-vis the expenditure which is to be disallowed under section 14A of the Act was incorrect. Another aspect to be noted in the case is that the Tribunal in assessee's own case had though accepted the proposition that AO in straightaway applying Rule 8D without recording objective satisfaction that the working of the assessee was not correct, cannot be appreciated. However, the issue was set aside to the file of the AO as the assessee had deviated from the formula consistently adopted in earlier years and it adopted a new formula for working out the disallowance. The assessee in the earlier year had disallowed the expenditure to the extent of 40%. However, in the preceding year the disallowance was made at 32% and in the year in appeal before us the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upulously observed. It was further held by the Hon'ble Bombay High Court in Taikisha Engineering India Ltd. (supra) that the AO at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If the Assessing Officer is not satisfied on this count after making reference to the account, then he is entitle to adopt the method as prescribed i.e. Rule 8D of the Rules. In the absence of said satisfaction being referred by the AO in the present case, we find no merit in the disallowance made by the AO under section 14A of the Act. Accordingly, we delete the disallowance of Rs. 10,24,681/-, though the assessee has raised ground of appeal against the disallowance of Rs. 11,23,626/-, out of which the CIT(A) had already allowed the expenditure of Rs. 98,945/- . Ground of appeal no. 2 raised by the assessee is thus allowed. 17. Now coming to the issue in ground of appeal no. 3 raised by the assessee against ad hoc disallowance of 5% made out of various expenses. The AO on the verification of the details furnished by the assessee noted that majority of expenses had been claimed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of CIT(A) for the absence of any evidence having been filed by the assessee merely because depreciation was allowed in the earlier years, was denied to the assessee in the present year in the absence of any details. The assessee is in appeal against the such disallowance of depreciation on residential building, which is claimed to be being used by the employees of the assessee. Similar issue of claim of depreciation on the said asset arose in Assessment Year 2001-02 wherein the premises were allotted to one of the employee of the assessee firm and depreciation on the said asset was allowed by the AO vide order passed under section 143(3) of the Act, dated 19.02.2004, the said residential flat is as per assessee, still being used by the employees and the per quest on account of the said residential accommodation is added in the hands of the employees. The claim of the assessee was denied by the authorities below in the absence of the particulars of the person having not been provided by the assessee. In all fairness we are of the view that the matter needs to be looked into by the AO, in order to verify claims of the assessee. Following the principles of natural justice we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nestone Reators Pvt. Ltd. (Rs.38,29,568/- and to Richa Realtors Pvt. Ltd. (Rs.77,78,996/-) being the actual amount paid to the builders on the last date of financial year. Although the properties were registered during the year they were capitalized as assets in later years. The agreement value and AIR data tally. Therefore the purchases are not unexplained. The addition of Rs. 1,20,40,838/- relating to undisclosed capital gain is deleted. This ground of appeal is allowed." 26. The Revenue is in appeal against the said order of the CIT(A) and is also aggrieved by the admission of the additional evidence. 27. The Ld. DR for the Revenue pointed out that the information was with the assessing officer on account of the AIR information. The Ld. AR for the assessee placed reliance on the explanation filed before the CIT(A) and also the order of the CIT(A). 28. We have heard rival contention and perused the record. The AO pursuant to the AIR information received show caused the assessee to explain the sale of two properties worth Rs. 60,20,400/- and 60,20,438/- The assessee denied to have sold any property. But the AO did not accept the denial made by the assessee and made the said add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talized in books of Accounts in F.Y. 2010-11 is as under: Particulars Amount (Rs.) Cost of Flat 45,05,600 Stamp Duty 2,85,200 Registration Fees 31,260 Legal Charges 15,000 Shares 500 Entrance Fees 100 Electric and Water Meter 10,000 Total amount Capitalized 48,47660 Similarly the Appellant has purchased the Flat No. 4 in building Gandhar from M/s. Richa Realtors Pvt. Ltd vide agreement dt.16th April,2007. The Appellant has registered the above agreement with Joint Sub Registrar, Mumbai on 16.04.2007. The Stamp duty value of above flat was Rs. 49,94,082/- whereas the purchase value as per Agreement was Rs. 60,20,4001-. The Appellant paid the stamp duty of Rs. 2,83,7001- on agreed purchase value of flat. As the purchase value of flat is more than the stamp duty value, the purchase value of flat of Rs. 60,40,400/- was disclosed by the Joint Sub Registrar in Annual Information Report filed by them with IT Authorities. The Appellant submit that it has purchased above flat from M/s Richa Realtors Pvt. Ltd. for consideration of Rs. 60,40,400/-. The Appellant also paid Rs. 15,05,1 001- to M/s Richa Realtors Pvt. Ltd for other amenities. Till the Financial Y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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