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The Suvarna Nagari Sahakari Patsanstha Ltd. Versus Income Tax Officer, Ward – 1 (4) , Nashik

2016 (1) TMI 218 - ITAT PUNE

Disallowance under section 14A in respect of dividend income - Held that:- The satisfaction of the Assessing Officer in this regard must be arrived at on an objective basis. The Assessing Officer cannot straight away proceed to apply rule 8D, without examining the merits of the assessee’s claim, in respect of the expenditure disallowed by it under section 14A of the Act. For rejecting the correctness of the claim of the assessee, the Assessing Officer is required to give a reasoned finding that .....

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ade, then it has to be presumed that the investments have come from the interest-free funds available with the assessee. This view is supported by the decision rendered by the Hon’ble Bombay High Court, in the case of CIT Vs HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT). In the instant case, the Assessing Officer has mechanically applied the provisions of section 14A read with Rule 8D without recording satisfaction or rejecting the claim of the assessee by giving any cogent reason. The A .....

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t year 2010-11. 2. In appeal, the assessee has raised the following grounds: (1) On the facts and in the circumstances of the case, the Ld. Commissioner (Appeals) has erred in confirming the disallowance of ₹ 4,26,258/- under section 14A in respect of dividend income of ₹ 3,78,251/- without considering that no nexus has been established between the expenditure and the earning of dividend income. (2) On the facts and in the circumstances of the case, the Ld. Commissioner (Appeals) has .....

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A without considering that the addition to the business income for such disallowance is also eligible for deduction u/s 80P. (4) On the facts and in the circumstances of the case, the Ld. Commissioner (Appeals) has erred in confirming the disallowance of ₹ 4,26,258/- under section 14A in respect of dividend income of ₹ 3,78,251/- without considering that the interest income was more than interest expense and that there was net positive interest income and therefore the same cannot be .....

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ordingly, notice u/s. 143(2) was issued to the assessee on 24-08-2011. During the course of scrutiny assessment, the Assessing Officer observed that the assessee has earned dividend income of ₹ 3,78,251/- from Mutual Funds. The Assessing Officer made disallowance of ₹ 4,26,258/- u/s. 14A r.w. Rule 8D in respect of the aforesaid tax free income earned by the assessee. Aggrieved by the assessment order dated 02-01-2013, the assessee preferred an appeal before the Commissioner of Income .....

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stment made in the mutual funds. No fresh investment was made by the assessee during the assessment year under appeal. The authorities below have erred in making disallowance u/s. 14A r.w. Rule 8D without rejecting the books of account of the assessee or by recording any satisfaction. The ld. AR submitted, that since the Assessing Officer has failed to record reasons for invoking the provisions of Rule 8D, the disallowance made u/s. 14A r.w. Rule 8D are liable to be set aside. To support his sub .....

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he decision of Hon'ble Bombay High Court in the case of CIT Vs. HDFC Bank reported as 89 CCH 185 (Bom). The third argument raised by the assessee against the disallowance is, that even if the disallowance is made, the assessee is a Co-operative Society and is eligible for deduction u/s. 80P. In support of his third submissions, the ld. AR draws support from the decision of the Co-ordinate Bench in the case of Shri Mahavir Nagari Sahakari Pat Sanstha Ltd. Vs. Dy. CIT reported as 74 TTJ 793 (P .....

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le in the light of decision by the Chandigarh Bench of the Tribunal in the case of Punjab State Co-operative Milk Producer Federation Ltd. Vs. Income Tax Officer reported as 104 ITD 408 (Chd). 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the rival sides have placed reliance. The assessee during the period relevant to the assessment year under appeal has earned tax f .....

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g the provisions of Rule 8D have made disallowance of ₹ 4,26,258/- u/s. 14A of the Act. 7. A perusal of the records show that the Assessing Officer has made disallowance of ₹ 4,26,258/- u/s. 14A r.w. Rule 8D whereas the assessee has earned tax free dividend income of ₹ 3,78,251/- only. Thus, the disallowance u/s. 14A is much more than the tax free dividend income earned by the assessee. The ld. AR of the assessee has submitted that the investment in mutual funds have been made .....

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ficer has not recorded any reason for invoking Rule 8D. After perusal of the assessment order, we are satisfied that the Assessing Officer has invoked the provisions of section 14A r. w. Rule 8D in an arbitrary manner and in violation of provisions of sub-section (2) of section 14A of the Act. Section 14A(2) requires that for determining the amount of expenditure incurred in relation to exempt income the Assessing Officer has to record satisfaction. It is a well settled law that the Assessing Of .....

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essee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, th .....

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essing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. The satisfaction of the Assessing Officer in this regard must be arrived at on an objective basis. The Assessing Officer cannot straight away proceed t .....

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