TMI Blog2017 (11) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... the methodology provided in Rule 8D(2)(iii), without satisfying the statutory requirement of first arriving at a satisfaction as required by the mandate of law, having regard to the accounts of the assessee as placed before him, therefore, we are unable to persuade ourselves to uphold the disallowance of ₹ 10,00,000/- which had been sustained by the CIT(A). The order of the CIT(A) sustaining the disallowance of ₹ 10,0,000/- under Sec. 14A is thus set aside. - Decided in favour of assessee. - I.T.A. No. 897/Mum/2016 - - - Dated:- 25-9-2017 - SHRI G.S. PANNU, AM AND SHRI RAVISH SOOD, JM For The Appellant : Shri , S. C. Tiwari, Ms. Rutuja Pawar, A.R. For The Respondent : Shri R.P. Meena, D.R. ORDER PER RAVISH SOOD, JUDICIAL MEMBER The present appeal filed by the assessee is directed against the order passed by the CIT(A)-9, Mumbai, dated 07.12.2015, which in itself arises from the order passed by the A.O u/s. 143(3) r.w.s. 254 of the Income Tax Act, 1961 (in short the Act ), dated 30.03.2013 for the A.Y. 2007-08. The assessee had assailed before us the order of the CIT(A) on the following grounds of appeal:- 1. Learned CIT(A) erred in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the record of the Assessing Officer for fresh adjudication as per law and in view of the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg. P. Ltd. (supra) as well as the decision relied upon by ld. A.R in the case of Yatish Trading Co. P. Ltd. (supra). 5. In the result, the appeal filed by the assessee is allowed for statistical purposes. 3. The A.O passed an order under Sec. 143(3) r.w.s 254, dated. 30.03.2013, giving effect to the aforesaid order of the Tribunal, dated. 05.08.2011. The A.O in the course of the set aside proceedings sustained the addition which was earlier made by the A.O under Sec. 14A in the original assessment order passed under Sec. 143(3). That on appeal before the CIT(A), the assessee assailed the repeat disallowance of ₹ 10,03,105/- made in its hands, on the ground that the A.O had failed to give effect to the directions of the Tribunal, which had while restoring the matter to the file of the A.O specifically directed that the issue pertaining to disallowance under Sec. 14A be adjudicated afresh, as per law, keeping in view of the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee who would keep a track of the payment of dividend and some telephone, conveyance and incidental expenses, all aggregating to ₹ 72,116/-, which were identified by the assessee, as under: S.No. Particulars of expense Amount 1. Out of Salary ₹ 60,000/- 2. Out of Administrative expenses for Telephone, conveyance and other incidental expense. ₹ 12,116/- Total ₹ 72,116/- 5. The assessee submitted before the CIT(A) that the A.O could not have dislodged its aforesaid claim without establishing a proximate connection of the incurring of expenses over and above those identified by the assessee for earning of the exempt income by the assessee. It was further averred by the assessee that as the dividend income was directly credited by the companies in the bank account of the assessee through ECS, therefore, no cost was involved in collection and deposit of the dividend in its bank account. Alternatively, it was submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the lower authorities and the earlier order passed by the Tribunal in ITA No. 4669/Mum/2010, dated. 05.08.2011, wherein the issue pertaining to the disallowance under Sec. 14A was restored to the file of the A.O with certain specific directions, as well as have deliberated on the material available on record. We have perused the orders of the lower authorities and are of a strong conviction that neither of the authorities below had in letter and spirit followed the specific directions which were given by the Tribunal, vide its order passed in ITA No. 4669/Mum/2010, dated. 05.08.2011, while restoring the matter pertaining to disallowance of expenses under Sec. 14A to the file of the A.O. We find that the A.O except for referring to the fact that the Hon ble High Court had in the case of Godrej Boyce Mfg. Co.(supra) held that where it was not possible to determine the actual expenditure incurred by the assessee in relation to the tax free income, the indirect expenses incurred by the assessee were to be apportioned, however, failed to give effect to the said judgment in totality. We are afraid to say, the A.O had absolutely failed to appreciate the judgment of the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in expenses, viz. part of the salary of one of the employee who would keep a track of the payment of dividend, telephone expenses, conveyance expenses and other incidental expenses only were incurred for earning of the aforesaid exempt income, had however discarded the said claim of the assessee and worked out such indirect expenses in terms of the methodology contemplated in Rule 8D(2)(iii), i.e @ 0.5% of the average value of the investments in share and securities (including those held by the assessee as stock in trade) of ₹ 20,06,21,007/-. We find that the A.O while passing the order under Sec. 143(3) r.w.s 254 had failed to establish any live nexus between the indirect expenses and the income which did not form part of the total income of the assessee. We find that the A.O had merely on the basis of a guess work worked out the disallowance of ₹ 10,03,105/- by presuming that the assessee must had incurred certain variable and other expenses for managing the portfolio/investments. We are unable to persuade ourselves to be in agreement with the very basis of making of the disallowance of the indirect expenses by the A.O in respect of earning of the dividend income by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch does not form part of his total income, then the A.O shall first verify the correctness of the said claim of the assessee. It is only where on the basis of an objective criteria and affording reasonable opportunity to the assessee, the A.O is however not satisfied with the correctness of the claim of the assessee, it is only then that he gets vested with the jurisdiction to reject the same, and after stating the reasons for doing so, proceed with and determine the amount of expenditure incurred in relation to such income which does not form part of the total income. The Hon ble High Court in its aforementioned judgment had observed as under:- Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO will have to verify the correctness of such claim. In case, the AO is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the AO is to accept the claim of the assessee insofar as the quantum of disallowance under s. 14A is concerned. In such eventuality, the AO cannot embark upon a determination of the amount of expenditure for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with regard to the correctness of the claim of the assessee, is obligatory and cannot be dispersed with by the A.O, thus stands settled and is no more res integra . We thus in the backdrop of the aforesaid judgment of the Hon ble Apex Court are of the considered view that now when the assessee in the present case had identified certain expense aggregating to ₹ 72,116/- (supra) as having been incurred in relation to the income which did not form part of its total income, then the A.O only after being satisfied that having regard to the accounts of the assessee, as placed before him, it was not possible for him to generate the requisite satisfaction with regard to the correctness of the claim of the assessee, thus, only after rejecting the said claim of the assessee, after complying with the aforesaid statutory obligations as stood cast upon him, could have validly proceeded with and determined the amount of expenditure incurred in relation to such income which did not form part of his total income. We however find that in the case of the present assessee the A.O had carried out the disallowance under Sec. 14A, in terms of the methodology provided in Rule 8D(2)(iii), only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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