TMI Blog2015 (9) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO and accordingly we find no merit in the order of the authorities below in this regard.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 - Decided in favour of assessee. Ad hoc disallowance of 5% made out of various expenses - Held that:- The assessee before us has failed to bring on record any evidence to controvert the finding of the AO/CIT(A) in this regard. Accordingly, we uphold the disallowance of 5% of expenditure out of balance expenses of ₹ 22,29,005/- as expenditure having been incurred in cash and not being supported by proper vouchers and also being incurred for non business purpose. - Decided against assessee. Disallowance of depreciation on residential premises - Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 26,01,054/- being fees paid under Portfolio Management Scheme(PMS) as not deductible expenditure u/s 48(1) of the I.T. Act against Short Term Capital Gain (STCG) computed by the Appellant during the year under consideration. The Appellant submits that PMS fees of ₹ 26,01,054/- is directly related to purchase and sale of shares and securities and hence the same ought to 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 ₹ 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 ₹ 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 rejecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case in ITA No. 3341/Mum/2009 relating to Assessment Year 2006-07 and vide order dated 03.06.2011, the Tribunal held that the issues stands decided against the assessee by the decision of Mumbai Bench of Tribunal in Devendra Moti Lal Kothari Vs. DCIT (2011) 136 TTJ (Mum) 188, wherein it was held as under:- 6. On merit, the learned counsel for the assessee has submitted that the matter may be restored to the file of the Assessing Officer for deciding the same 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts relating to the issue are that during the year under consideration, the assessee had claimed dividend income of ₹ 43,19,310/- as exempt under section 10(35) and 10(34) of the Act. The explanation of the assessee before the AO was that it had utilized its own funds for investment in mutual funds and also through PMS in shares and securities. Further the assessee had computed the disallowance under section 14A of the Act at ₹ 98,945/- being 50% of the employees cost. The AO rejecting the claim of the assesssee computed the disallowance under section 14A read with rule 8D at ₹ 11,23,626/-. The CIT(A) upheld the order of the AO. However, since the assessee had already disallowed ₹ 98,945/- the disallowance was restricted to ₹ 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 ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income in the hands of the assessee, no deduction shall be allowed in respect of expenditure incurred by the assessee in earning such income, which does not form part of the total income under the Act. In other words, the expenditure relating to the income, which is exempt from tax is not to be allowed as a deduction under section 14A of the Act. Subsection 2 to the section provides that the AO shall determine the amount of expenditure incurred in relation to such income, which does not form part of total income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the rules; (ix) The satisfaction envisaged by sub-s. (2) of s. 14A is an objective satisfaction that has to be arrived at by the AO having regard to the accounts of the assessee. The safeguard introduced by sub-s. (2) of s. 14A for a fair and reasonable exercise of power by the AO, conditioned as it is by the requirement of an objective satisfaction, must, therefore, be scrupulously observed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .72 lakhs are attributable to the exempt income earned by the assessee (record placed at pages 44 to 46 of the paper book). In view of the detailed working given by the assessee and following the ratio laid down by the Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. (supra) and by the Hon'ble Delhi High Court in the case Taikisha Engineering India Ltd. and Maxopp Investment Ltd. before applying the provisions of Rule 8D of the I.T. Rules, the AO was duty bound to record his dissatisfaction that the working of the disallowance made by 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- -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 proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Boyce Manufacturing Company Ltd. Vs. ACIT (supra), since, the original provision of Rule 8D were not applicable prior to Assessment Year 2008-09. However, the Hon'ble Bombay High Court as referred to by us in the paras hereinabove had laid down the proposition that the satisfaction required under subsection 2 of section 14A is an objective satisfaction, that has to be arrived at by the AO, having regard t the accounts of the assessee. It was further held by the Hon'ble Bombay High Court that such exercise of power must be scrupulously 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of 5% of expenditure out of balance expenses of ₹ 22,29,005/-. The ground of appeal no. 3 raised by the assessee is dismissed. 22. The issue in ground of appeal no. 4 is against the disallowance of depreciation on residential premises of ₹ 7,91,136/- the claim of the assessee before the authorities below was that it had provided the said residential premises but its employees who were working with the assessee for the past several years. The AO further, denied the said claim of the assessee as no evidence was produced by the assessee in support thereof. The CIT(A) also upheld the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to use i.e. in Financial Year 2010-11. The CIT(A) admitted the evidence filed by the assessee and observed as under:- 5.3 I have carefully considered the facts of the case, arguments of the Assessing Officer and the written submissions of the Authorized Representative of the appellant. I find that appellant had made purchases of flats which were duly disclosed in Balance Sheet. Appellant was not given opportunity to gather and produce these evidence as it was the last month of time barring date for assessment. Therefore this evidence has to be admitted. Both the properties are disclosed under the head advances to Finestone 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 ₹ 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 aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em with IT Authorities. The Appellant submit that it has purchased above flat from Finetone Realtors Pvt. Ltd for total consideration of ₹ 45,05,6001-. Till the Financial Year ended 31st March, 2008 e Appellant has paid 38,29,568/- for purchase of above property. The Appellant enclose herewith ledger account of M/s. Finetone Realtors Pvt. Ltd for F.Y.2005-06 to 2010-11 in the books of Appellant. This payment was shown as 'Other Advances' in the Balance Sheet of Appellant for F.Y.2007-08. Subsequently after making full payment and when the above premises was put to use the Appellant has capitalized the same in F.Y.2010-11. The total amount capitalized 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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