TMI Blog2018 (7) TMI 1725X X X X Extracts X X X X X X X X Extracts X X X X ..... MEMBER For The Assessee : Shri. Amit Singhania For The Revenue : Shri. V. Justin ORDER PER RAMIT KOCHAR, Accountant Member These two appeals, filed by the assessee, being ITA No. 76/Mum/2016 ITA no. 77/Mum/2016 respectively for assessment year 2011-12 2012-13 are directed against composite appellate order dated 30. 10. 2015 passed by learned Commissioner of Income-tax (Appeals)-7, Mumbai (hereinafter called the CIT(A) ) for assessment year 2011-12 2012-13 respectively, the appellate proceedings had arisen before learned CIT(A) from separate assessment order(s) dated 28. 02. 2014 and 12-01-2015 respectively passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2011-12 and 2012-13 respectively. 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA no. 76/Mum/2016 for AY 2011-12, read as under:- 1. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the assessment order dated February 28, 2014,, pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance under section 14A of the Act should be such amount out of the total administrative expenditure of ₹ 6,14,000, which is in the same proportion which dividend income of ₹ 54,77,080 bears to the total receipts (professional fees and income from mutual funds) of ₹ 6,63,51,380, but not exceeding the amount of administrative expenditure. 4. That on the facts and circumstances of the case and in law, the AO/CIT(A), while determining the final tax liability of the Appellant, erred in granting TDS credit of ₹ 44,26,076, instead of ₹ 57,51,332, as claimed by the Appellant, resulting in short TDS credit to the extent of ₹ 13,25,258. 5. That on the facts and circumstances of the case and in law, the AO/CIT(A) erred in levying interest under section 234B/234C of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal. 4. The brief facts of the case are that the assessee is a firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 19,58,33,282/- Avg. ₹ 97,91,664/- 0. 5% of above ₹ 4,89,583/- Thus, the amount disallowed by the AO u/s 14A of the 1961 Act read with Rule 8D of the 1962 Rules was made at ₹ 4,89,583/- which was added back to the total income of the assessee by the AO vide assessment order dated 28-02-2014 passed u/s 143(3) of the 1961 Act for AY 2011-12. 5. Aggrieved by the assessment order dated 28-02-2014 passed by the AO u/s 143(3) of the 1961 Act for AY 2011-12, the assessee filed first appeal with the Ld. CIT(A) who dismissed the appeal of the assessee vide appellate order dated 30. 10. 2015, by holding as under:- 5. I have carefully considered the facts of the case and the submission of the AR. I have also gone through the decisions relied on by the Ld. AR. The appellant has stated that the AO has not given any finding that any particular expenses was incurred to earn the dividend. The expenses were incurred for earning the professional fees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the cases relied on by the Ld. AR are not similar. In the case of Daga Global Chemicals P. Ltd. , the Hon'ble Tribunal has held that disallowance u/s 14A r. w. Rule 8D cannot exceed exempt income. In that case, the assesse had received dividend of ₹ 1,82. 362/- only whereas the disallowance was ₹ 14,58,112/-. In the case of Joint Investments P. Ltd. (supra), the assessee had received exempt income in the form of dividend to the tune of ₹ 48,90,000/-. The assessee had volunteered ₹ 2,97,440/- as disallowance u/s 14A. The AO, however, disallowed ₹ 52,56,197/- which was higher than the entire exempt income of ₹ 48,90,000/-. In that case, the AO has not disclosed why the appellant's claim of ₹ 2,97,440/-had to be rejected. The Hon'ble Court stated that the proportion of expenditure cannot be more than the exempt income. In the case of Taikisha engineering India Ltd. , the AO disallowed the expenditure of ₹ 42,59,540/~ as against the suo moto expenses of ₹ 1,15,000/- by the assesse. The Hon'ble Court held that the AO should verify the disallowance made by the assesse and if he is not satisfied on this account, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regards to the accounts of the assessee before making any disallowance of expenditure incurred in relation to earning of an exempt income as is contemplated u/s 14A of the 1961 Act. It is strenuously argued that assessee has invested in mutual funds and no cost has been incurred for managing of investments as well for earning of an exempt income which could be disallowed u/s 14A of the 1961 Act. It is submitted by learned counsel for the assessee that portfolio managers are looking after and managing the portfolio of the assessee and their costs/fees are recovered vide purchases and sales of securities while no separate costs/fees are being charged by portfolio managers to the assessee towards management of portfolio of assessee‟s investments . On being directed by the Bench ,the Ld. Counsel for the assessee submitted audited financial statements of the assessee firm. The Ld. Counsel for the assessee also submitted replies dated 27. 01. 2014 and 19. 02. 2014 filed by the assessee before the AO. The learned counsel for the assessee relied upon the decision of Hon‟ble Punjab Haryana High Court in the case of CIT v. Abhishek Industries Ltd. reported in (2015) 56 Taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es r. w. s. 14A of the 1961 Act to make disallowance of ₹ 4,89,583/- , however, we have observed that the AO has not gone into details of expenses incurred by the assessee in relation to earning of an exempt income having regards to the accounts of the assessee to identify expenses incurred in relation to earning of an exempt income which could be disallowed u/s 14A , before proceeding to invoke Rule 8D of the 1961 Act. In our considered view the requirements of section 14A requires assessee to explain and bring on record complete modus operandi of the operations carried out by it with respect to its investments activities and the persons/cost associated with same which in the instant case are not brought on record by the assessee. Thus in view of submission of the assessee that there are no expenses incurred in connection with the investment activity and earning of an exempt income prompted the AO to trigger the invocation of Rule 8D of the 1962 Rules but the AO was required to record satisfaction having regard to the accounts of the assessee which in the instant case was not recorded by the AO . In all fairness to both the parties , the matter need to be restored to the fil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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