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2019 (10) TMI 383

..... mine the amount of expenditure incurred in relation to such income which does not form part of the total income under 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. In the instant case, we find that there is no tangible material on record, there is no record of examination of accounts as stipulated under section 14A(2), there is no satisfaction recorded by the Assessing Officer in terms of the expenditure claimed by the assessee, and hence keeping in view the provisions of the Act, the process embarked upon by the assessee and the judicial pronouncements, it is hereby held that the re-computation done by the Assessing Officer in the absence of recording of the satisfaction is liable to be set aside. - Decided in favour of assessee. Disallowance of 1/5th of the expenses of Telephone, Mobile and Car expenses - HELD THAT:- CIT (A) after careful consideration of the facts of the case and the case laws cited by the Ld. AR .....

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..... nal High Court in the case of C.l.T. vs. Abhishek industries Limited dated 27-01-2015 clearly hold that Section 14A of the Act cannot be applicable unless and until satisfaction is recorded. The onus, therefore, to prove the applicability of section 14A, lies squarely on the shoulders of the revenue. 4. That the Ld. Commissioner of Income Tax (Appeals) is grossly erred by holding that once the assessee has earned exempt income, the provisions of section 14A are attracted and disallowance has to be worked out by applying rule 8D. Whereas. It is settled by various judicial pronouncements that invoking Rule 8D is not mandatory, it will be resorted to only if Ld. Assessing Officer is not satisfied as to the correctness of the claim of expenses made by the assessee as stipulated and mandated in section 14A; and invoking Rule 8D is not automatic. 5. That Ld. Commissioner of Income Tax (Appeals) has passed the order in utter haste and without considering the records of the case. That Ld. Commissioner of Income Tax (Appeals) has held that no decision of any Hon'ble High Court has been delivered after considering circular No. 5 of 2014 issued by CBDT. Whereas number of recent judgments .....

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..... ssing Officer is not satisfied as to the correctness of the claim of expenses made by the assessee as stipulated and mandated in section 14A: and invoking Rule 8D is not automatic. 5. That the order of the Ld. Commissioner of income Tax (Appeals) is contrary to Law and facts of the case. 6. That the Appellant craves leave to add, amend or alter any grounds of Appeal before the Appeal is heard and disposed off. ITA No. 1085/CHD/2017 1. That Ld. Commissioner of Income Tax (Appeals) is not justified in law and facts of the case by confirming disallowance of expenses to the tune of ₹ 707517/- on account of disallowance made u/s 14A read with rule 8-D in Appellant's case. 2. That Ld. Commissioner of Income Tax has misconstrued and misapplied the provisions of section 14A of the Income Tax Act 1961 in Appellant's case. That Ld. Commissioner of Income Tax has never verified facts of the assessment order and totally ignored the assessment order, wherein details of expenditure incurred for earning dividend income was duely furnished and such amount was duely taken while computing the disallowance. Further Ld. Commissioner of Income tax has clearly held in his order that there .....

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..... be ruled out and l/5th of these expenses are disallowed. 7. That the Ld. Commissioner of Income Tax (Appeals) is also not justified in law and facts of the case by disallowing the interest of ₹ 18434/- in Appellant's case. It is well settled law that no disallowance of interest can be made when such advances have been made from assessee's own funds and reserves & surplus. In assessee's case surplus own funds are available and the same is verifiable from the balance sheet. Moreover these advances have been made in promoting its business and incurred for earning more profits, in such cases no disallowance can be made where funds have been advanced exclusively for business purposes. 8. That the order of the Ld. Commissioner of income Tax (Appeals) is contrary to Law and facts of the case. 9. That the Appellant craves leave to add, amend or alter any grounds of Appeal before the Appeal is heard and disposed off. ITA No. 563/CHD/2017 1. That Ld. Commissioner of Income Tax is not justified in law and facts of the case by confirming disallowance of expenses to the tune of ₹ 86163/- on account of disallowance made u/s 14A read with rule 8-D in Appellant's c .....

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..... issioner of Income Tax (Appeals) has misconstrued and misapplied the provisions of section 14A of the Income Tax Act 1961 in Appellant's case. That Ld. Commissioner of Income tax has clearly held in his order that there is no set language which can be used for recording dissatisfaction for the claim made by the assessee, whereas in landmark judgment of Hon'ble Jurisdictional High Court in the case of C.l.T. vs. Abhishek industries Limited dated 27-01-2015 clearly hold that Section 14A of the Act cannot be applicable unless and until satisfaction is recorded. The onus, therefore, to prove the applicability of section 14A, lies squarely on the shoulders of the revenue. 3. That the Ld. Commissioner of Income Tax (Appeals) is grossly erred by holding that once the assessee has earned exempt income, the provisions of section 14A are attracted and disallowance has to be worked out by applying rule 8D. Whereas. It is settled by various judicial pronouncements that invoking Rule 8D is not mandatory, it will be resorted to only if Ld. Assessing Officer is not satisfied as to the correctness of the claim of expenses made by the assessee as stipulated and mandated in section 14A: and .....

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..... has generalized all the expenses debited to Profit and Loss account for earning exempt income by the Appellant. No specific expenses were pointed for earning exempt income on investments. 4. That the Ld. Commissioner of Income Tax (Appeals)-4 is grossly erred by holding that once the assessee has earned exempt income, the provisions of section 14A are attracted and disallowance has to be worked out by applying rule 8D. Whereas. It is settled by various judicial pronoun cements that invoking Rule 8D is not mandatory, it will be resorted to only if Ld. Assessing Officer is not satisfied as to the correctness of the claim of expenses made by the assessee as stipulated and mandated in section 14A: and invoking Rule 8D is not automatic. 5. That the order of the Ld. Commissioner of income Tax (Appeals)-4 is contrary to Law and facts of the case. 6. That the Appellant craves leave to add, amend or alter any grounds of Appeal before the Appeal is heard and disposed off. 3. Grounds relating to disallowance under section 14A r.w.r 8D is common for all the appeals hence being dealt together. 4. Facts taken from the orders of the Ld. CIT(A) are that the assessee is engaged in the business of .....

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..... f the observations of the Assessing Officer, the assessee took the plea that the Assessing Officer has not mentioned his dissatisfaction mandated as per provisions of Section 14A(2). The Ld. CIT(A) held that from the paras of the assessment order which have been reproduced above, it can be deciphered that the Assessing Officer has clearly recorded his dissatisfaction with regard to the claim of expenditure stated to be incurred by the assessee for earning dividend income. It would be necessary to note that to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act, by applying the method which is prescribed in Rule 8D, the Assessing Officer must not be satisfied with the correctness of the claim of the assessee, having regard to the accounts of the assessee. The same provision is contained in sub-rule (1) of the Rule 8D of the Income Tax Rules, 1962 which stipulates that the Assessing Officer, if he is not satisfied, having regard to the accounts of the assessee with the correctness of the claim of the expenditure made by the assessee or the claim of the assessee that no expenditure has been incurred, shall .....

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..... en discussed in detail. And not come across any decision of any Hon. Court which has been delivered after considering Circular No. 5 of 2014 issued by the CBDT, New Delhi. 7. During the arguments before us, the Ld. AR submitted that the assessee had investments of ₹ 3,70,73,052/- and received dividend of ₹ 30,38,202/- on investments as well as during the trading operations. He also debited an amount of ₹ 901691/- towards the salaries and ₹ 179,800/- towards computer expenses. The total turnover of the assessee was ₹ 95, 45, 43,106/-. He argued that an amount of ₹ 60,000/- has been duly incurred for earning dividend which has been duly reflected in the accounts. He argued that there is no satisfaction recorded by the Assessing Officer while determining the expenses under section 14(A). He relied on the judgment of the jurisdictional High Court in the case of CIT Vs. Abhishek Industries Ltd and other arguments as taken before the lower authorities. 7.1. On the other hand Ld. DR strongly relied on the order of the Ld. CIT(A) and argued that there is an implicit satisfaction recorded by the Assessing Officer and there cannot be fixed format for recor .....

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..... at in the absence of satisfaction recorded before invoking sub rule 2 of Rule 8D of the Rules, the computation made by the Assessing Officer is invalid {(Taikisha Engineering India Ltd. in ITA No. 115/2014 (Del)}. Similarly the jurisdictional High Court in the case of Abhishek Industries Ltd. (Appeal No. 320 of 2013, P&H) held that Section 14A of the Act, being in the nature of an exception, has to be construed strictly and only where the Assessing Officer records satisfaction on the basis of clear and cogent material, shall an order passed under section 14A of the Act disallowing such claim. In case no tangible material is available on the record that could have been enable the Assessing Officer to record satisfaction in terms of 14A, the re computation done by the Assessing Officer cannot be treated as valid. 9. In the instant case, we find that there is no tangible material on record, there is no record of examination of accounts as stipulated under section 14A(2), there is no satisfaction recorded by the Assessing Officer in terms of the expenditure claimed by the assessee, and hence keeping in view the provisions of the Act, the process embarked upon by the assessee and th .....

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