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2016 (7) TMI 905 - ITAT KOLKATA

2016 (7) TMI 905 - ITAT KOLKATA - TMI - Disallowance under Rule 8D(iii) r.w.s. 14A - non recording of requisite satisfaction before making the disallowance - Held that:- AO has to record the satisfaction having regard to its books of account. In our view AO has not recorded the requisite satisfaction before making the disallowance u/s. 14A(2) of the Act. We also find that from the Memorandum Explaining the provision of Finance Bill, 2006 and CBDT in its Circular dated 28 of 2006 states that sinc .....

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tisfied with the correctness of the claim of assessee and such sub-section (3) of Sec. 14A of the Act clarify that the application of method would be attracted even under a situation where the assessee claimed that no expenditure at all was incurred in relation to earning of non-taxable income. In our considered view, it was necessary for the AO to arrive at applying the provision of the Act 14A of the Act to record the ‘satisfaction’ after having regard to its books of account. - Decided in fav .....

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le-11, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his orders dated 30.08.2010 & 17.01.2011 for assessment years 2008-09 & 2009- 10 respectively. 2. Both the appeals are heard together and are being disposed of by way of common order for the sake of convenience. Shri S.M.Surana & Shri Sunil Surana L d Authorized Representatives appeared on behalf of assessee and Shri Amitabha Roy, L d Departmental Representative appeared on behalf of Reve .....

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ation (NBFC for short) issued by Reserve Bank of India. The assessee is engaged in business of loan, investment and real estate development. The assessee has filed its return of income on 28.07.2008 declaring total income of ₹ 2,62,49,220/- for the year under consideration. Thereafter case was selected for scrutiny and notice issued u/s 143(2) of the Act was issued. The assessee, during the year earned tax exempted income in the form of dividend income of ₹ 16,00,385/- and Long Term .....

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the question of making disallowance u/s 14A r.w.s. 8D of IT Rule does not arise. However, assessee under protest has submitted that interest earned during the year is of ₹ 2,80,98,214/- and interest paid is of ₹ 1,04,235/-. The interest earned exceeds the interest expenses by ₹ 2,79,93,979/- and therefore the disallowance under Rule 8D(2)(ii) of IT Rule is not warranted. With regard to disallowance under Rule 8D(2)(iii), assessee has worked out the disallowance at ₹ 17,3 .....

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ed for making the disallowance vide its reply dated 10.08.2010 for ₹ 17,31,535/-. Accordingly, AO disallowed the total sum of ₹ 18,10,754/- and added back to the total income of assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A), where assessee submitted that no part of expenditure is directly attributable to earn exempt income and dividend earned during the year have directly been electronically credited in the accounts of assessee by the companies paying the div .....

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e trade and a sum of ₹ 9,25,279/- towards the granting of loans. The balance expense of ₹ 27,10,247/- has been left over as un-allocable corporate expense comprising the following:- Nature Amount (Rs) a) Auditor s fees 67,416/- b) depreciation 9,22,643/- c) charity and donation 8,00,000/- d) miscellaneous expenses 2,95,728/- e) interest 1,04,235/- f) securities transaction tax 5,20,225/- 27,10,046/- Out of above expenses depreciation being statutory allowance and outside the purview .....

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ion before invoking the provision of Rule 8D of the IT Rule as required u/s 14A(2) of the Act. The AO can make the disallowance only after having regard to the accounts of the assessee and is not satisfied with the correctness of the claim of assessee. However, Ld. CIT(A) disregarded the claim of assessee by holding as under:- 4. I have considered the finding of the AO in his order dt. 30.08.2010 and the written submission filed by the AR during the appellate proceedings. Appeal on ground no. 1 .....

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nterest receipt was more than interest outgo, therefore, no disallowance was to be computed under rule 8D(2)(ii). During the assessment proceeding the AR suo moto filed a computation of disallowance under rule 8D(2)(ii) at ₹ 1731535/- which was fund to be correct calculation by the AO and the AO accepted it. The appeal has been filed for addition of ₹ 79219/- made y the AO on the basis of expenditure calculated by the AO u/s8D(2)(ii) and also 2007 the word used in Sec. 14A(2) is the .....

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CIT(A) assessee preferred second appeal before us. 7. Before us Ld AR reiterated the submission made before the lower authorities that no satisfaction was recorded in the assessment order hence no disallowance can be made and satisfaction has to be having regard to the accounts of the assessee. He cited the reference case law in ITA No.1318/Kol/2013 in the case of Rajma Projects, Lucas Estates in CA No. 65/Kol/2014 and the co-ordinate Bench has decided u/s 14A in ITA No. 1331/Kol/2011 subsequent .....

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rtments Ltd. in ITA No. 1277/Kol/2011 dated 30.03.2012. Ld. AR stated that disallowance of ₹ 17,31,535/- was not justified since no satisfaction was recorded and alternatively considering the volume of other business transactions and the fact that in AY 2009-10 entire business of granting of loans and advances could be carried out for ₹ 4.45 lakhs and disallowance of ₹ 17,31,535/- was not justified. Again, Ld. AR argued that AY 2009-10, the assessee itself disallowed ₹ 56 .....

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ehemently relied on the orders of Authorities Below. 8. We have heard the rival contentions and perused the materials available on record. From the foregoing discussion, we find that the AO has invoked the provision of Sec. 14A r.w.s. Rule 8D and made a total disallowance of ₹ 18,10,754/- which was subsequently confirmed by L d CIT(A). Now the question before us arise so as to whether the disallowance made by the AO u/s 14A of the Act is corrected in the aforesaid facts and circumstances o .....

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nder this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts 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 does not form part of the total income under this Act. From a bare reading of the said Section we find that AO has to record the satisfaction having regard to its books of account. In our view AO has not recorded the requisite satisfa .....

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ection 14A of the Act. It was in this background, that sub-section (2) of Sec. 14A of the Act was inserted so as to provide an uniform method applicable in the situations where Assessing Officer is not satisfied with the correctness of the claim of assessee and such sub-section (3) of Sec. 14A of the Act clarify that the application of method would be attracted even under a situation where the assessee claimed that no expenditure at all was incurred in relation to earning of non-taxable income. .....

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ACIT vs. Elcher Ltd. (2006) 101 TTJ 369 (Del) f) ACIT vs. Jindal Saw Pipes Ltd (2008) 118 TTJ 228 (Del) g) CIT vs. Metalman Auto P. Ltd. (2011) 336 ITR 434 (P & H) h) CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P & H) i) DCIT vs. Jindal Photo Ltd.ITA No.4539/Del/2010 dated 22.12.2010 j) Godrej & Byoce vs. DCIT 328 ITR 81 (Bom) The relevant extract of the order of Hon ble Delhi Tribunal in the case of ACIT vs. Elcher Ltd. (2006) 101 TTJ 369 (Del) is reproduced below. A look at the l .....

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low and accordingly use suitable expressions in the section conferring such power upon the AO. One such instance is s. 38(2) which gives the power to the AO to restrict certain deductions under ss. 30, 31 and 32 "to a fair proportionate part thereof which the AO may determine having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession". Another such instance is of s. 40A(2)(a) which gives power to the AO to determine, based o .....

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ssessee would have, in the opinion of the AO, incurred in relation to the exempted income. The words "in relation to" income which is exempt under the Act, no doubt, appear to be broad at first impression, but on deeper examination, and read in conjunction with the word "incurred", it seems that these are restrictive words, restricting the power of the AO to estimate a part of the expenditure incurred by the assessee as relatable to the exempted income. It seems that implicit .....

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d be actually incurred and so incurred with a view to producing non-taxable income. If this much is clear from the section, it follows that it is the duty of the AO to pin point such expenditure on the basis of the material on record. Sec. 14 only removes the disability on the part of the AO to disallow such expenditure, a disability to which he was subjected by the three judgments of the Supreme Court. The mere removal of the disability statutorily, however does not ipso facto authorize him to .....

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end warrant and no effort or expenses were necessary or were incurred to earn such income. There is also no material brought to show that the assessee s contention that no part of the interest can be attributed to the earning of the dividend income since the shares were acquired from the own funds in the earlier years and not from borrowed funds, is factually incorrect. In these circumstances, there is no material on the basis of which the AO would estimate and disallow a sum of ₹ 5 lakhs .....

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