TMI Blog2020 (2) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... that the conclusion made by the ld. CIT(A) and the order of ld. CIT(A) on this issue cannot be sustained. We therefore set aside the order of CIT(A) and direct the AO to delete the disallowance made under Rule 8D(2)(iii). Disallowance under Rule 8D(2)(ii) of the Rules - CIT-A deleted the addition - HELD THAT:- In this case, we find that ld. CIT(A) has recorded the findings of the fact that the assessee s interest after setting off the interest expenditure with interest income therefore no interest expenditure is called for disallowance. Besides the ld. CIT(A) has recorded a finding of fact that borrowed funds were raised for advancing loans and earning taxable interest income. Moreover we have decided that AO has not recorded any objective satisfaction before invoking provisions of section 14A r.w.r. 8D and on this count of also the addition will not survive. Accordingly we dismiss the Ground No.1 of the Revenue. Disallowance of professional fees paid to Mr. Arata Nambu - CIT-A deleted the addition - HELD THAT:- As decided in own case [ 2019 (9) TMI 1312 - ITAT MUMBAI] documentary evidence which had been relied upon by the ld. AR to support the aforesaid claim of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 9.26 crores. b. 3 The issue raised by the assessee in Ground No.1 is against the confirmation of disallowance of ₹ 4.91 crores by the CIT(A) as made by the AO u/s 14A of the Act r.w.r. 8D(2)(iii) of the Income Tax Rules, 1962 by ignoring the fact that the assessee has suo motto disallowed a sum of ₹ 61.57 lacs which was calculated at 20% of the salary of six specified employees associated with investment activities and equal percentage on overhead expenses. During the year, the assessee has earned exempt income by way of dividend of ₹ 9,26,19,245/- and has also made suo motto disallowance of ₹ 61,97,540/- towards expenses pertaining to earning of exempt income. Accordingly, the AO issued show-cause notice to the assessee as to why disallowance u/s 14A of the Act r.w.r. 8D of Rules should not be calculated as per the said Rule 8D. The assessee submitted before the AO that tax free investments were funded out of company s own funds and therefore disallowance of interest u/s 14A is not required to be made. The assessee also submitted that borrowings were used for giving loans and earning interest thereon. The assessee submitted that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R by referring to para 3.3 of the assessment order submitted that the AO has made general observation only as regards the various expenses to be disallowed and no objective satisfaction has been recorded, therefore, provisions of section 14A r.w.r. 8D(2)(iii) of the Rules have wrongly been invoked. The ld. AR submitted that general satisfaction is not valid sufficient and the AO is required to be record objective satisfaction after having seen the books of accounts of the assessee. The ld. AR in defence of his argument referred to the decision of Hon'ble Delhi High Court in the case of H.T. Media Ltd. v. PCIT [2017] 85 taxmann.com 113 (Delhi) and therefore prayed that the addition as confirmed by the ld CIT(A) as made by the AO under Rule 8D(2)(iii) may be deleted.. 7. The ld. DR on the other hand relied on the order of AO and CIT(A) by submitting that disallowance under Rule 8D(2)(iii) was rightly made by the AO and may kindly be confirmed. 8. After hearing both the parties and perusing the materials available on record, we observe that in this case undisputedly the AO has recorded general satisfaction as is apparent from the perusal of the assessment order particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding expenditure incurred to earn the exempt income. 34. The Assessee had explained that ₹ 3 lakhs was being disallowed voluntarily as an expenditure which could be attributable for earning the said income. The Assessee explained that the disallowance had been determined on the basis of cost of finance department in the ratio of exempt income to total turnover. On that basis the disallowance in AY 2005-06 was upheld by CIT (A) at ₹ 1 lakh. The disallowance for this AY was worked out as ₹ 1,42,404/- and since the Assessee had already made a disallowance of ₹ 3 Lacs, no further disallowance was called for. 35. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of ₹ 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules. 7. It is thus clear by the decision of Hon'ble Delhi High Court that AO is required to examine the books of accounts first and record his satisfaction as to how the disallowance made by the assessee, is wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in the F.Y 2008-09 which was disallowed by the AO. In the appellate proceedings, the ld. CIT(A) allowed the appeal of the assessee and Revenue came in appeal before the Tribunal against the deletion of the said payment to Mr. Arata Nambu by ld. CIT(A). The Hon ble Coordinate Bench dismissed the appeal of the Revenue in ITA No.1098/Mum/2013 A.Y 2009-10. The relevant extracted portion is reproduced as under: 15. We have given a thoughtful consideration to the issue before us in the backdrop of the contentions advanced by the authorized representatives for both the parties. As regards the disallowance of the professional fees of ₹ 43 lacs claimed by the assessee to have aid Mr. Arata Nambu, an unrelated Japanese citizen, is concerned, we find substantial force in the claim of the Id. A.R that the said payments were made to him for the services which were rendered by him as a business advisor. As is discernible from the documentary evidence to which our attention was drawn by the Id. AR, it can safely be gathered, that the aforesaid person had rendered his services as an overseas advisor in Japan, and had explored opportunities in the overseas market for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the ground of the Revenue. Moreover, the issue has been already decided by the Coordinate Bench of this Tribunal in ITA No.1098/Mum/2013 in A.Y 2009-10 by dismissing the ground raised by the Revenue and upholding the order of CIT(A). The relevant para is reproduced below: 16. We shall now advert to the contention advanced by the Id. AR, that the CIT(A) was in error in setting aside the issue pertaining to the disallowance of commission to Galaxy Automobile Pvt. Ltd. and IKON Solutions to the file of the A.O, failing to appreciate that the power to 'set aside' a matter as was vested with him under Sec.251 of the Act, were no more available w.e.f 01.06.2001. We have given a thoughtful consideration to the aforesaid contention advanced by the Id. D.R, and are unable to persuade ourselves to subscribe to his aforesaid claim in the backdrop of the facts involved in the case before us. Admittedly, the CIT(A) up to 31.05.2001 was inter alia vested with the power to 'set aside' the matter to the file of the AO. However, the legislature in all its wisdom, in order to avoid prolonged litigations, had vide the Finance Act, 2001, w.e.f 01.06.2001 withdrawn the power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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