TMI Blog2014 (10) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... he Rules to compute the impugned disallowance is untenable. Accordingly, the orders of the authorities below are set-aside on this aspect and the Assessing Officer is directed to retain the disallowance u/s 14A of the Act to the extent of ₹ 5,00,000/-, as returned by the assessee. - Decided in favour of assessee. - ITA No. 2012/PN/2013 - - - Dated:- 21-10-2014 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER For the Appellant : Shri Nikhil Pathak For the Respondent: Shri B.C. Malakar ORDER PER R.S. PADVEKAR, JM:- This appeal is filed by the assessee challenging the impugned order of the Ld. CIT(A)-I, Pune dated 20-09-2013 for the A.Y. 2010-11. The assessee has taken following grounds in the appeal: 1.1. On the facts of the case and in law, the learned CIT(A) erred in confirming disallowance of an additional amount of ₹ 78,84,361/- (over and above of ₹ 5,00,000/- disallowed by the Appellant Company in its Statement of Total Income) as expenditure incurred in relation to income which does not form part of the total income u/s. 14A by applying Rule 8D while assessing total income as per regular provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has declared dividend of ₹ 57,14,868/- and Long Term profit on the sale of investments of ₹ 13,50,57,705/- which have been claimed as exempt from tax under section 10(34), 10(35) and 10(38) of the Income-tax Act, 1961 respectively. The assessee company on its own has disallowed expenditure of ₹ 5,00,000/- in relation to the said exempted income in the statement of total income. However, having regard to the accounts of the assessee, the Assessing Officer was not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of total income under the Incometax Act. The assessee thereafter was called upon to furnish the computation of expenditure u/s. 14A as per rule 8D of the I.T. Rules, which was submitted by the assessee as follows:- Particulars Amount (Rs.) Amount (Rs) 1 Average Investment Investment As per Audited accounts Less Investments having taxable income i.e. Debentures in Chakrapani Investments Trades Ltd Surajmukhi Investments Finance Ltd Gladiolla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was as per the provisions of law. He argues that the Assessing Officer issued the notices to the assessee on the disallowance to be made u/s. 14A and that going to suggest that the Assessing Officer has recorded the satisfaction. The Ld. DR pleads for confirming the order of the CIT(A). 7. We find that in this year the assessee has made the investment in the mutual funds to the extent of ₹ 6 crores. We also find that as compare to the preceding year, the assessee has partly liquated the investments from which exempt income is generated. Moreover, in our opinion there is no specific objective satisfaction recorded by the Assessing Officer which is one of the mandates of Sec. 14A (2). The identical situation has been considered by the Tribunal in the assessee s own case in the A.Y. 2008-09 in ITA No. 1733/PN/2012 order dated 30- 01-2014. The operative part of the reasons and findings of the Tribunal are as under: 8. We have carefully considered the rival submissions. Section 14A of the Act contemplates that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim made by the assessee. The Assessing Officer has to first consider the correctness of the claim of the assessee having regard to the accounts of the assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Central Board of Direct Taxes circular dated December 28, 2006, state that since the existing provisions of section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be based on reasons and on relevant considerations. Ostensibly, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is to be understood as being conditional on the objective satisfaction of the Assessing Officer with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. At this stage, we may also touch-upon a similar view expressed by the Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. vs. CIT, (2012) 247 CTR 162 (Del), wherein reference has been made to the judgment of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra). As per the Hon ble Delhi High Court, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income in term of rule 8D of the Rules would be triggered only if the Assessing Officer records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. According to the Hon ble Delhi High Court, subsection (2) of section 14A of the Act deals with cases where the assessee specifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual fund investments were claimed to be also made out of surplus funds. It was specifically claimed that no fresh investments have been made during the year under consideration in shares yielding exempt income. All the aforesaid points raised by the assessee have not been addressed by the Assessing Officer and the same have been brushed aside by making a bland statement that the disallowance is not acceptable . Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the impugned disallowance is untenable. Accordingly, the orders of the authorities below are set-aside on this aspect and the Assessing Officer is directed to retain the disallowance u/s 14A of the Act to the extent of ₹ 5,00,000/-, as returned by the assessee. 8. We, therefore, following the decision of this Tribunal in the assessee s own case in the A.Y. 2008-09 in ITA No. 1733/PN/2012 order dated 30-01-2014 direct the Assessing Officer to accept the disallowan ..... 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