TMI Blog2020 (10) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 8D are not applicable - AO, on the basis of information furnished by the assesse has noted that the explanation furnished by the assessee is not acceptable - findings recorded by the Ld. AO is sufficient and a clear indication of his compliance of the procedure prescribed u/s 14A(2) and hence, we are of the considered view that there is no merit in argument taken by the Ld. AR for the assessee regarding satisfaction as required u/s 14A(2 - Hence, an argument of assessee is rejected. Interest disallowances - It is a settled position of law that only net interest expenditure needs to be considered for computing disallowances u/s 14A. This principle is supported by the decision of CIT vs Jubiliant Enterprises Pvt.Ltd [ 2017 (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue by Shri Anand Mohan, CIT-DR ORDER PER G.MANJUNATHA (A.M): This appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) 56, Mumbai, dated 31/01/2017 and it pertains to Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal:- Re. Relief No. 1 The Commissioner of Income-tax (Appeals)-56, Mumbai [hereinafter referred to as the CIT(A) ] erred in holding that provisions of section 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) are applicable with respect to interest received by the branch of the appellants from its HO having failed to appreciate that interest received from HO is not exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia through its PE (Permanent Establishment) and thus, the Head Office (HO) becomes the AE of the branch offices in India. In this case, a draft assessment order u/s 144C(1) r.w.s 143(3) of the Act, 1961 was passed on 25/03/2015. In the draft assessment order, the Ld. AO has proposed adjustment of ₹ 26,65,783/- towards Arm s Length Price (ALP) of interest on borrowing from head office. It is seen from the records that the assessee has neither, filed any objections before the Ld. DRP, nor has intimated the Ld. AO about the acceptance of variation in draft assessment order, within the period specified in sub-section (2) of section 144C of the I.T.Act, 1961. Therefore, the Ld. AO has passed final assessment order on 29/05/2015 u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee by following the order of the ITAT in assesee own case for AY 2004-05 2005-06. Further, the Ld. AR for the assessee, at the time of hearing submitted that he do not wish to press ground No.4 5 challenging upward adjustment made by the TPO, an interest paid by the Indian branch to its head office and therefore, ground NO.4 and 5 of the assessee are dismissed as not pressed. 6. The next and final issue that came up for our consideration from ground No.2 3 of assessee appeal is disallowances u/s 14A of the Act, r.w.Rule 8D(2) of I.T. Rules, 1962. The Ld. AO has disallowed an amount of ₹ 88,551/- towards interest expenditure under Rule 8D(2)(ii) and other expenses @0.5% of average value of investments under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14A is mandatory, in the case, where the assessee earned exempt income and hence, there is no merit in arguments of the assessee that adhoc disallowances of 1% to 2% of total exempt income may be disallowed and is opposed to the settled position of law. 9. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. As regards, satisfaction issue, we find that the question of recording satisfaction comes into play only, when the assessee has made suo-moto disallowance u/s 14A, but such disallowances has not been accepted by the Ld. AO. In such eventuality, the Ld. AO has to record clear satisfaction as required u/s 14A(2) of the Act, having regard to books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck to disallowances quantified by the Ld. AO u/s 14A of the I.T.Act, 1961. As regards interest disallowances, it is a settled position of law that only net interest expenditure needs to be considered for computing disallowances u/s 14A. This principle is supported by the decision of Hon ble Bombay High court, in the case of CIT vs Jubiliant Enterprises Pvt.Ltd in ITA No.1512/2014. Therefore, we direct the Ld. AO to consider net interest expenditure for the purpose of working out disallowances of interest under Rule 8D(2)(ii) of I.T.Rules, 1962. As regards other expenditure, although the assesee has requested for disallowances of 1% to 2% of exempt income, but from AY 2008-09 onwards disallowances contemplated u/s 14A shall be computed in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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