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2016 (12) TMI 753

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..... sessee adequate opportunity of being heard and examining the assessee's claims in this regard. We hold and direct accordingly. - Decided in favour of assessee for statistical purposes. - ITA No. 7086/Mum/2013 - - - Dated:- 9-11-2016 - Jason P. Boaz, Accountant Member and Amarjit Singh, Judicial Member Mrunal Parekh for the Appellant Ranatir Gupta for the Respondent ORDER Per Jason P. Boaz, AM This appeal by the assessee is directed against the order of the CIT(A)-3, Mumbai dated 21.10.2013 for A.Y. 2010-11. 2. The facts of the case, briefly, are as under:- 2.1 The assessee, an advocate by profession filed her return of income for A.Y. 2010-11 on 14.10.2010 declaring income of 65,15,110/- from profession, capital gains and income from other sources. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 31.12.2012, wherein the income of the assessee was determined at 73,31,610/- in view of the following disallowances:- (i) From business promotion expenses ₹ 53,931/- .....

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..... were explained as to why no administrative expenditure was incurred by the assessee for earning the said exempt income and why no borrowed funds were used for such investments, the AO has not at all addressed the assessee's contentions therein and in para 7 of the order of assessment has made a factually incorrect statement that the assessee offered the disallowance of ₹ 5,67,458/- under section 14A of the Act. It was further contended that this disallowance comprised of interest under Rule 8D(2)(ii) r.w.s. 14A of 2,36,417/-, which was interest paid on car loan to ICICI Bank, which had nothing at all to do with the funds utilised by the assessee for investment in instruments which generated exempt income and details of which had been furnished to the AO vide the above referred letter dated 02.11.2012. He further questioned the disallowance under Rule 8D(2)(ii) of administrative expenses in the light of the disallowances already made by the AO out of motor car expenses, depreciation on motor car, telephone charges, business promotion expenses, etc. According to the learned A.R. of the assessee these disallowances have no nexus, whatsoever, with the earning of exempt incom .....

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..... ully considered the material on record; including the judicial pronouncements cited. The facts that emanate from the record are that in the year under consideration the assessee had earned exempt income of 12,84,516/- which does not form part of the total income and claimed that no expenditure was incurred for earning the same. On being queried by the AO in this regard, the assessee vide letter dated 05.11.2012 (copy placed at pg. 1 to 5 of the paper book) submitted that, inter alia, all investments were routed through ABN Amro Bank, her banker, who do not charge their clients any fees for such services rendered and therefore no disallowance was called for. We observe that there is no mention or addressal of the assessee's explanation in the order of assessment. Rather it is seen that the AO states that the assessee agreed for the disallowance of 5,67,458/-; which averment is strongly contested by the assessee as being factually incorrect and this assertion by the assessee has not been controverted by Revenue before us. As contended by the assessee, we find that the AO's lack of clarity and application of mind further extends to the working of the break-up of the disallowan .....

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..... 4.3.3 A plain reading of the provisions of section 14A (supra) indicate that the AO shall determine the amount of expenditure disallowable under section 14A following the method prescribed in this regard under Rule 8D; if he is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Satisfaction of the AO as to the incorrect claim of the assessee in this regard is a pre-requisite for invoking the applicability of Rule 8D and such satisfaction can be reached and recorded only when the claim of the assessee is examined and verified having regard to the accounts of the assessee. From a perusal of the order of assessment, we observe that the AO totally ignored and did not address the assessee's detailed submissions placed before him vide letter dated 05.11.2012 (copy placed at pg. 1 to 5 of paper book) without appreciating whether they were correct or not, having regard to the accounts of the assessee. The disallowance was made totally ignoring the assessee's averments and on the premise that the assessee had offered the disallowance; which has been contested as being factually incorrect. This contention of the assessee ha .....

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