BENNETT PROPERTY HOLDINGS COMPANY LIMITED, MUMBAI V. Asstt. Commissioner of Income Tax - 1 (1) (1), Mumbai, Mumbai

ITA 247/MUM/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2016 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 16-01-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA No. 247/MUM/2024 Assessment Year: 2014-15 Bennett Property Holdings Company Ltd., 5 th floor, Times Tower, Kamala Mills Compound, S. B. Marg, Lower Parel (West), Mumbai-400013. Vs. Asstt. CIT Circle 1(1)(1), Aayakar Bhavan, Mumbai-400020. PAN NO. AAECB 3780 H Appellant Respondent Assessee by : Mr. Madhur Agrawal Revenue by : Mr. Ashok Kumar Ambastha, Sr. DR Date of Hearing : 27/05/2024 Date of pronouncement : 30/05/2024 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 05.12.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2014-15, raising following grounds: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance by the Ld. AO u/s 14A (2) of the Income Tax Act, 1961 (the Act), by invoking Rule 8D. 2. AO erred in invoking Rule 8D to disallow Rs 2,93,27,456 under Section 14(2) of the Act without coming to an objective satisfaction based on the accounts of the appellant that the disallowance made in the return of income was incorrect, the order of the Ld. CIT(A) confirming the said disallowance of Rs 2,93,27,456 was erroneous. 3. On the facts and circumstances of the case and in law, assuming without admitting that Rule 8D is applicable and can be invoked the appellant submits that: appellant from its subsidiaries, the value of investments held by the appellant in its subsidiaries are not includible in arr monthly averages of the opening and closing balances of under the said Rule. (b) Since the income earned by the appellant in mutual fund units held under growth schemes are taxable, the value of investments held by the appellant in growth schemes are not includible in arriving at the monthly averages of the opening and closing balances of investment under the said Rule. 4. On the facts and in the circumstances of the case and in law the appellant submits that interest u/s 234C Section 234C of the Act only empower him to charge interest on the returned income. 5. On the facts and in the circumstances of the case and in law, appellant having paid more than the prescribed percentage by way of instalments of advance tax before the relevant due dates prescribed, there is no deferment of advance tax based on the returned income and consequently the appellant denies its liabili interest u/s 234C of the Act. 2. Briefly stated facts of the case are that the assessee filed return of income on 29.11.2014 declaring total income at Rs.33,94,30,646/-. The return of income filed by the assessee was selected for scrutiny Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act dated 06.12.2016, the Assessing Officer made disallowance including disallowance u/s Bennett Property Holdings Company Ltd. 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of Rs 2,93,27,456 made by the Ld. AO u/s 14A (2) of the Income Tax Act, 1961 (the Act), by invoking Rule 8D. 2. AO erred in invoking Rule 8D to disallow Rs 2,93,27,456 under Section 14(2) of the Act without coming to an objective satisfaction accounts of the appellant that the disallowance made in the return of income was incorrect, the order of the Ld. CIT(A) confirming the said disallowance of Rs 2,93,27,456 was erroneous. 3. On the facts and circumstances of the case and in law, assuming hout admitting that Rule 8D is applicable and can be invoked the appellant submits that: - (a) Since no income was received by the appellant from its subsidiaries, the value of investments held by the appellant in its subsidiaries are not includible in arriving at the monthly averages of the opening and closing balances of under the said Rule. (b) Since the income earned by the appellant in mutual fund units held under growth schemes are taxable, the value of investments held by the appellant in mutual fund units under growth schemes are not includible in arriving at the monthly averages of the opening and closing balances of investment under the said Rule. 4. On the facts and in the circumstances of the case and in law the appellant submits that the Ld. Assessing Officer erred in levying interest u/s 234C on the assessed income when the provisions of Section 234C of the Act only empower him to charge interest on the returned income. 5. On the facts and in the circumstances of the case and in law, appellant having paid more than the prescribed percentage by way of instalments of advance tax before the relevant due dates prescribed, there is no deferment of advance tax based on the returned income and consequently the appellant denies its liability to be charged interest u/s 234C of the Act. Briefly stated facts of the case are that the assessee filed return of income on 29.11.2014 declaring total income at . The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act dated 06.12.2016, the Assessing Officer made disallowance including disallowance u/s Bennett Property Holdings Company Ltd. 2 ITA No. 247/Mum/2024 1. On the facts and circumstances of the case and in law, the Ld. of Rs 2,93,27,456 made by the Ld. AO u/s 14A (2) of the Income Tax Act, 1961 (the Act), by 2. AO erred in invoking Rule 8D to disallow Rs 2,93,27,456 under Section 14(2) of the Act without coming to an objective satisfaction accounts of the appellant that the disallowance made in the return of income was incorrect, the order of the Ld. CIT(A) confirming the said disallowance of Rs 2,93,27,456 was erroneous. 3. On the facts and circumstances of the case and in law, assuming hout admitting that Rule 8D is applicable and can be invoked the (a) Since no income was received by the appellant from its subsidiaries, the value of investments held by the iving at the investment under the said Rule. (b) Since the income earned by the appellant in mutual fund units held under growth schemes are taxable, the value mutual fund units under growth schemes are not includible in arriving at the monthly averages of the opening and closing balances of investment under the said Rule. 4. On the facts and in the circumstances of the case and in law the Assessing Officer erred in levying on the assessed income when the provisions of Section 234C of the Act only empower him to charge interest on the 5. On the facts and in the circumstances of the case and in law, the appellant having paid more than the prescribed percentage by way of instalments of advance tax before the relevant due dates prescribed, there is no deferment of advance tax based on the returned income ty to be charged Briefly stated facts of the case are that the assessee filed return of income on 29.11.2014 declaring total income at . The return of income filed by the assessee was and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act dated 06.12.2016, the Assessing Officer made disallowance including disallowance u/s 14A of the Act amounting to Rs.2,93,27,456/ Rule 8D of the Income 3. On further appeal, the Ld. CIT(A) upheld the disallowance of expenses made by the Assessing Officer under Rule 14A r.w.r. 8D of the Rules. 4. We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. counsel for the assessee referred to Ground No. 2 of the appeal and submitted that the Assessing Officer has not recorded dissatisfaction on the computation of the disallowance made by the assessee and therefore, disallowance invoking of Rule 8D without recording dissatisfaction is not in accordance with law and therefore, disallowance need to be deleted. 4.1 The Ld. Departmental Representative (D relied on the order of the Ld. CIT(A). 4.2 As far as issue of non correctness of claim disallowance towards exempted income, the Ld. CIT(A) has followed the decision of the Hon’ble Delhi High Court in the case of India Bulls Financial Services Ltd. v. DCIT 76 taxmann.com 268 (Delhi) and decision of the Hon’ble High Court of Gujarat in the case of Devarsons Industries (P.) Ltd. v. ACIT 84 taxmann.com 244 Bennett Property Holdings Company Ltd. mounting to Rs.2,93,27,456/- by way of invoking Rule 8D of the Income-tax Rules, 1962 (in short ‘the Rules’). On further appeal, the Ld. CIT(A) upheld the disallowance of expenses made by the Assessing Officer under Rule 14A r.w.r. 8D of We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. counsel for the assessee referred to Ground No. 2 of the appeal and submitted that the Assessing Officer has not recorded dissatisfaction on the computation of the disallowance made by the assessee and therefore, disallowance invoking of Rule 8D without recording dissatisfaction is not in accordance with law and therefore, disallowance need to be deleted. The Ld. Departmental Representative (DR) on the other hand relied on the order of the Ld. CIT(A). As far as issue of non-recording of the dissatisfaction on the of the assessee relating to computation of the disallowance towards exempted income, the Ld. CIT(A) has followed the decision of the Hon’ble Delhi High Court in the case of India Bulls Financial Services Ltd. v. DCIT 76 taxmann.com 268 (Delhi) n of the Hon’ble High Court of Gujarat in the case of Devarsons Industries (P.) Ltd. v. ACIT 84 taxmann.com 244 Bennett Property Holdings Company Ltd. 3 ITA No. 247/Mum/2024 by way of invoking tax Rules, 1962 (in short ‘the Rules’). On further appeal, the Ld. CIT(A) upheld the disallowance of expenses made by the Assessing Officer under Rule 14A r.w.r. 8D of We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. counsel for the assessee referred to Ground No. 2 of the appeal and submitted that the Assessing Officer has not recorded dissatisfaction on the computation of the disallowance made by the assessee and therefore, disallowance invoking of Rule 8D without recording dissatisfaction is not in accordance with law and therefore, R) on the other hand recording of the dissatisfaction on the of the assessee relating to computation of the disallowance towards exempted income, the Ld. CIT(A) has followed the decision of the Hon’ble Delhi High Court in the case of India Bulls Financial Services Ltd. v. DCIT 76 taxmann.com 268 (Delhi) n of the Hon’ble High Court of Gujarat in the case of Devarsons Industries (P.) Ltd. v. ACIT 84 taxmann.com 244 (Gujarat). The relevant finding of the Ld. CIT(A) is reproduced as under: “5. As far as the initial grounds are concerned, Ground 3 is general i nature and needs no separate adjudication while all other grounds 1 & 2 pertain to the enhancement of disallowance u/s 14A of the IT Act from Rs.1,20,835/- computed by assessing officer(AO) in accord Rules. 6. All the submissions made by the appellant including the judicial references cited are perused with care along with the contents of the assessment order. As already stated, the issue is with regard to reworking of disallowance u/s 14A of the IT Act u/r 8D of the IT Rules by the AO as against that working provided by assessee and the appellant contended that AO had not recorded any satisfaction before invoking the said Rule. To give effect to the provision of Section 14A (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the income not includable in the total income. Sub-rule (1) echoes the provision of subsections (2) and (3) of Section 14A where it provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been incurred in relation to the income income, he would determine the amount of expenditure in relation to such income in accordance with the provisions of sub Rule 8D prior to its amendment with effect from 02.06.2016 provided a formula to apportion the expenditure in connection with the tax free income. However, these statutory provisions do not require that such satisfaction must be arrived at in a particular manner. As long as there is sufficient material to enable the Assessing satisfaction, the requirements of the statute would be satisfied. In the case of India bulls Financial Services Ltd.v.DCIT, Circle taxmann.com 268 (Delhi), the hon'ble high court of Delhi held that here Assessing Officer after carrying out elaborate analysis and following steps enacted in statute, had determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his dissatisfaction about assessee's calculation, hi rejected. The extract of the relevant portion of this decision is as under: 7. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of di same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In oth mandate to apply the formulae as it were under Rule 8D because Bennett Property Holdings Company Ltd. elevant finding of the Ld. CIT(A) is reproduced as As far as the initial grounds are concerned, Ground 3 is general i nature and needs no separate adjudication while all other grounds 1 & 2 pertain to the enhancement of disallowance u/s 14A of the IT Act from (suo-moto computed by appellant to Rs Rs.2,93,27,456/ computed by assessing officer(AO) in accordance with Rule 8D of the IT All the submissions made by the appellant including the judicial references cited are perused with care along with the contents of the assessment order. As already stated, the issue is with regard to reworking lowance u/s 14A of the IT Act u/r 8D of the IT Rules by the AO as against that working provided by assessee and the appellant contended that AO had not recorded any satisfaction before invoking the said Rule. To give effect to the provision of Section 14A and in particular subsection (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the income not includable in the total rule (1) echoes the provision of subsections (2) and (3) of on 14A where it provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been incurred in relation to the income which does not form part of the total income, he would determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). Sub Rule 8D prior to its amendment with effect from 02.06.2016 provided a ormula to apportion the expenditure in connection with the tax free income. However, these statutory provisions do not require that such satisfaction must be arrived at in a particular manner. As long as there is sufficient material to enable the Assessing Officer to arrive at such a satisfaction, the requirements of the statute would be satisfied. In the case of India bulls Financial Services Ltd.v.DCIT, Circle taxmann.com 268 (Delhi), the hon'ble high court of Delhi held that here ficer after carrying out elaborate analysis and following steps enacted in statute, had determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his dissatisfaction about assessee's calculation, his conclusion could not be rejected. The extract of the relevant portion of this decision is as under: 7. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because Bennett Property Holdings Company Ltd. 4 ITA No. 247/Mum/2024 elevant finding of the Ld. CIT(A) is reproduced as As far as the initial grounds are concerned, Ground 3 is general in nature and needs no separate adjudication while all other grounds 1 & 2 pertain to the enhancement of disallowance u/s 14A of the IT Act from Rs.2,93,27,456/- ance with Rule 8D of the IT All the submissions made by the appellant including the judicial references cited are perused with care along with the contents of the assessment order. As already stated, the issue is with regard to reworking lowance u/s 14A of the IT Act u/r 8D of the IT Rules by the AO as against that working provided by assessee and the appellant contended that AO had not recorded any satisfaction before invoking the said Rule. and in particular subsection (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the income not includable in the total rule (1) echoes the provision of subsections (2) and (3) of on 14A where it provides that if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been which does not form part of the total income, he would determine the amount of expenditure in relation to such rule (2). Sub-rule (2) of Rule 8D prior to its amendment with effect from 02.06.2016 provided a ormula to apportion the expenditure in connection with the tax free income. However, these statutory provisions do not require that such satisfaction must be arrived at in a particular manner. As long as there is Officer to arrive at such a satisfaction, the requirements of the statute would be satisfied. In the case of India bulls Financial Services Ltd.v.DCIT, Circle - 11(1), 76 taxmann.com 268 (Delhi), the hon'ble high court of Delhi held that here ficer after carrying out elaborate analysis and following steps enacted in statute, had determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his s conclusion could not be rejected. The extract of the relevant portion of this decision is as under: 7. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the sallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology er words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figur he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted. 8. In this instance the e indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, would not per satisfied or did not record cogent reasons for his dissatisfaction to reject the AO's conclusion. To insist that the AO should pay such lip service regardless of the substantial compliance with the provis would, in fact, destroy the mandate of Section 14A. 9. Having regard to these facts, this Court is satisfied that the disallowance which is otherwise in accord with Rule 8D(c) was justified. No substantial question of law arises. The appeal is dismiss In the case of Devarsons Industries (P.) Ltd.v.ACIT (OSD), 84 taxmann.com 244 (Gujarat), the hon'ble high court of Gujarat held that Where Assessing Officer gave detailed reasons for making disallowance under section 14A in respect of exempt dividend i discarding assessee's theory that to earn assessable income assessee incurred no expenditure whatsoever, mere fact that Assessing Officer did not arrive at satisfaction in a particular manner while making said disallowance, would not per se destroy mandate of section 14A. Hence there is no force in the contention of the appellant as the AO had rightly invoked the Rule 8D of the IT Rules to work out the quantum of disallowance u/s 14A of the IT Act. Accordingly, all the init rejected.” 4.3 Thus, the issue in dispute is whether Assessing Officer has recorded any express or implied dissatisfaction to the claim of the assessee of disallowance against exempted Ld. Assessing Officer has disallowed expenses u/s 14A of the Act observing as under: “4. Disallowance u/s 14A of Income Tax ACT, 1961: During assessment proceedings, following facts are observed: Bennett Property Holdings Company Ltd. of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted. 8. In this instance the elaborate analysis carried out by the AO indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, would not per se justify this Court in concluding that he was not satisfied or did not record cogent reasons for his dissatisfaction to reject the AO's conclusion. To insist that the AO should pay such lip service regardless of the substantial compliance with the provis would, in fact, destroy the mandate of Section 14A. 9. Having regard to these facts, this Court is satisfied that the disallowance which is otherwise in accord with Rule 8D(c) was justified. No substantial question of law arises. The appeal is dismissed. In the case of Devarsons Industries (P.) Ltd.v.ACIT (OSD), 84 taxmann.com 244 (Gujarat), the hon'ble high court of Gujarat held that Where Assessing Officer gave detailed reasons for making disallowance under section 14A in respect of exempt dividend income and LTCG earned by assessee discarding assessee's theory that to earn assessable income assessee incurred no expenditure whatsoever, mere fact that Assessing Officer did not arrive at satisfaction in a particular manner while making said , would not per se destroy mandate of section 14A. Hence there is no force in the contention of the appellant as the AO had rightly invoked the Rule 8D of the IT Rules to work out the quantum of disallowance u/s 14A of the IT Act. Accordingly, all the initial grounds 1 to 3 raised by the appellant stands Thus, the issue in dispute is whether Assessing Officer has express or implied dissatisfaction to the claim of the assessee of disallowance against exempted Ld. Assessing Officer has disallowed expenses u/s 14A of the Act 4. Disallowance u/s 14A of Income Tax ACT, 1961: During assessment proceedings, following facts are observed: Bennett Property Holdings Company Ltd. 5 ITA No. 247/Mum/2024 of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should e on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted. laborate analysis carried out by the AO - as indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, se justify this Court in concluding that he was not satisfied or did not record cogent reasons for his dissatisfaction to reject the AO's conclusion. To insist that the AO should pay such lip service regardless of the substantial compliance with the provisions 9. Having regard to these facts, this Court is satisfied that the disallowance which is otherwise in accord with Rule 8D(c) was justified. No substantial question of law arises. The appeal is In the case of Devarsons Industries (P.) Ltd.v.ACIT (OSD), 84 taxmann.com 244 (Gujarat), the hon'ble high court of Gujarat held that Where Assessing Officer gave detailed reasons for making disallowance under section 14A ncome and LTCG earned by assessee discarding assessee's theory that to earn assessable income assessee incurred no expenditure whatsoever, mere fact that Assessing Officer did not arrive at satisfaction in a particular manner while making said , would not per se destroy mandate of section 14A. Hence there is no force in the contention of the appellant as the AO had rightly invoked the Rule 8D of the IT Rules to work out the quantum of ial grounds 1 to 3 raised by the appellant stands Thus, the issue in dispute is whether Assessing Officer has express or implied dissatisfaction to the correctness of claim of the assessee of disallowance against exempted income. The Ld. Assessing Officer has disallowed expenses u/s 14A of the Act 4. Disallowance u/s 14A of Income Tax ACT, 1961: During assessment a. Assesse has suo moto disallowed Rs. b. Assesse has made fresh investments in mutual funds during the year. c. Assesse has earned exempt income of Rs. 7,52,30,159/ 2014- 15 d. Assesee's has not calculated disallowance in line with rule 8D(2) (ili) towards administrative and other costs of making and maintaining investments. Hence, I am satisfied that ad just in this case and provisions of section 14A r.w.r 8D should be attracted in this case. Calculation of 14A di PARTICULARS 1. Direct expenses attributable 2. Interest claimed (A)* average investments(B)/average of total assets (C) i.e. A*B/C 3. 0.5% of the average investments (6,33,05,99,124 + 54.48,71,7345)/2*.5/100 Total Since assesse has already of Rs.2,93,27,456/ 4.4 On perusal of the above, we find that the Assessing Officer has only mentioned that the assessee in terms of Rule 8D(2)(iii) of the Rules towards administrative and other cost of making and maintaining investments. Thus, the Bennett Property Holdings Company Ltd. a. Assesse has suo moto disallowed Rs. 1,20,835/- u/s 14A of the Act b. Assesse has made fresh investments in mutual funds during the year. c. Assesse has earned exempt income of Rs. 7,52,30,159/ d. Assesee's has not calculated disallowance in line with rule 8D(2) (ili) rds administrative and other costs of making and maintaining Hence, I am satisfied that ad-hoc disallowance made by assesee is not just in this case and provisions of section 14A r.w.r 8D should be attracted Calculation of 14A disallowance Amt. (Rs.) Remark Direct expenses attributable Nil Interest claimed (A)* average investments(B)/average of total Nil Assessee's own funds are much more than investment 0.5% of the average investments (6,33,05,99,124 + 54.48,71,7345)/2*.5/100 2,94,48,291/- Investment in subsidiaries companies have also been considered considering Karnataka HC decision in case of United Breweries Limited vs. DCIT (date of publication 17-08-2016) wherein it has been held that section 14A is applicable even where the motive of the assessee in acquiring the shares is to obtain controlling interest in a company and not to earn dividends. 2,94,48,291/- Since assesse has already disallowed, Rs. 1,20,835/-, a further addition of Rs.2,93,27,456/- is made in the total income returned by assesse. Total disallowance = Rs. 2,93,27,456/ On perusal of the above, we find that the Assessing Officer has only mentioned that the assessee has not calculated disallowance in terms of Rule 8D(2)(iii) of the Rules towards administrative and other cost of making and maintaining investments. Thus, the Bennett Property Holdings Company Ltd. 6 ITA No. 247/Mum/2024 u/s 14A of the Act b. Assesse has made fresh investments in mutual funds during the year. c. Assesse has earned exempt income of Rs. 7,52,30,159/- during AY d. Assesee's has not calculated disallowance in line with rule 8D(2) (ili) rds administrative and other costs of making and maintaining hoc disallowance made by assesee is not just in this case and provisions of section 14A r.w.r 8D should be attracted Assessee's own funds are much more than investment Investment in subsidiaries companies have also been considered considering Karnataka HC decision in case of United Breweries Limited vs. DCIT (date of publication 2016) wherein it has been held that section 14A is applicable even where the motive of the assessee in acquiring the shares is to obtain controlling interest in a company and not to earn dividends. , a further addition is made in the total income returned by assesse. Total disallowance = Rs. 2,93,27,456/- On perusal of the above, we find that the Assessing Officer has has not calculated disallowance in terms of Rule 8D(2)(iii) of the Rules towards administrative and other cost of making and maintaining investments. Thus, the Assessing Officer for invoking Rule 8D has taken the basis of Rule 8D only and not independently expenditure of the assessee exempted income and dissatisfaction to claim of assessee keeping in view the assessee. In the case of India Bulls Financial Services Ltd. (supra), the Hon’ble Court held that implied dissatisfaction suffice for invoking section 14A of the Act but in the case even there is no implied dissatisfaction by the Assessing Officer and he has only mentioned that disallowance Rule 8D of Rules. Similarly, in the case of Devarsons Industries (P.) Ltd. (supra), Hon’ble Court held that the Assessing Officer did not arrive at satisfaction in a particular manner while said disallowance, which 14A. In the instant case, the Assessing Officer has not recorded any kind of dissatisfaction as to the of the assessee. Before us, the Ld. counsel for the ass the decision of the Hon’ble Bombay High Court in the case of CIT v. Bombay Stock Exchange Ltd. [2020] 113 taxmann.com 303 (Bombay), wherein High Court observed that recording by the Assessing Of disallowance was not being worked out as per Rule the cart before the horse. The relevant finding of the Hon’ble High Court is reproduced as under: Bennett Property Holdings Company Ltd. Assessing Officer for invoking Rule 8D has taken the basis of Rule 8D only and not independently examined the correctness of expenditure of the assessee of Rs. 1,20,835/- towards earning and not recorded any express or implied claim of assessee keeping in view n the case of India Bulls Financial Services Ltd. (supra), the Hon’ble Court held that implied dissatisfaction suffice for invoking section 14A of the Act but in the case even there is no implied dissatisfaction by the Assessing Officer and he has mentioned that disallowance was not computed by the . Similarly, in the case of Devarsons Industries (P.) Hon’ble Court held that the Assessing Officer did not arrive at satisfaction in a particular manner while said which would not per se destroy mandate 14A. In the instant case, the Assessing Officer has not recorded any kind of dissatisfaction as to the correctness of claim of expenditure of the assessee. Before us, the Ld. counsel for the ass the decision of the Hon’ble Bombay High Court in the case of CIT v. Bombay Stock Exchange Ltd. [2020] 113 taxmann.com wherein in identically circumstances High Court observed that recording by the Assessing Of not being worked out as per Rule the cart before the horse. The relevant finding of the Hon’ble High Court is reproduced as under: Bennett Property Holdings Company Ltd. 7 ITA No. 247/Mum/2024 Assessing Officer for invoking Rule 8D has taken the basis of Rule correctness of claim of towards earning express or implied claim of assessee keeping in view the accounts of n the case of India Bulls Financial Services Ltd. (supra), the Hon’ble Court held that implied dissatisfaction is suffice for invoking section 14A of the Act but in the case even there is no implied dissatisfaction by the Assessing Officer and he has computed by the as per . Similarly, in the case of Devarsons Industries (P.) Hon’ble Court held that the Assessing Officer did not arrive at satisfaction in a particular manner while said would not per se destroy mandate of section 14A. In the instant case, the Assessing Officer has not recorded any claim of expenditure of the assessee. Before us, the Ld. counsel for the assessee relied on the decision of the Hon’ble Bombay High Court in the case of Pr. CIT v. Bombay Stock Exchange Ltd. [2020] 113 taxmann.com identically circumstances, the Hon’ble High Court observed that recording by the Assessing Officer that 8D , is putting the cart before the horse. The relevant finding of the Hon’ble High “9. We note that it is evident from the extracted part of the assessment order referred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule 8D of the said Rules. It is only in view of the disallowances not being worked out as per Rule 8D of t Assessing Officer is not satisfied with the disallowance offered by the Respondent. This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the a disallowance offered by the Respondent in terms of section 14A(2) of the Act. It only on being dissatisfied with the above, does Rule 8D of the Rules can be invoked to compute the disallowance. 10. Mr. Vaidya, learned his submission that satisfaction which was to be recorded by the Assessing Officer has to be clear and on an objective basis without any reference to Rule 8D. In support of his contention, our attention is the judgment of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010]_194 Taxman 203/328 ITR 81 while dealing with constitutional validity of Rule 8D of the said Rules, negatived the challenge to its validity by, inter alia, re "57. Now in dealing with the challenge it is necessary to advert to the position that Sub method for determining the amount of expenditure incurred in relation to income which does not form in a situation where 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. It therefore merits emphasis that Sub authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature of the claim made by the assessee. The Assessing Officer has to first consider the correctness of the claim of the ass accounts of the assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had t expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non the memorandum ex and the CBDT circular dated 28 December 2006 state that since the existing provisions of Section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form pa between tax payers and the department on determining such expenditure. It was in this background that Sub Bennett Property Holdings Company Ltd. We note that it is evident from the extracted part of the assessment eferred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule 8D of the said Rules. It is only in view of the disallowances not being worked out as per Rule 8D of the Rules, that the Assessing Officer is not satisfied with the disallowance offered by the This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the assessee, he is not satisfied with the disallowance offered by the Respondent in terms of section 14A(2) . It only on being dissatisfied with the above, does Rule 8D of the Rules can be invoked to compute the disallowance. 10. Mr. Vaidya, learned counsel appearing for the Respondent is correct in his submission that satisfaction which was to be recorded by the Assessing Officer has to be clear and on an objective basis without any reference to Rule 8D. In support of his contention, our attention is the judgment of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010]_194 Taxman 203/328 ITR 81 while dealing with constitutional validity of Rule 8D of the said Rules, negatived the challenge to its validity by, inter alia, recording as under: "57. Now in dealing with the challenge it is necessary to advert to the position that Sub-section (2) of Section 14A prescribes a uniform method for determining the amount of expenditure incurred in relation to income which does not form part of the total income only in a situation where 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. It therefore merits emphasis that Sub-section (2) of Section 14A does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature of the claim made by the assessee. The Assessing Officer has to first consider the correctness of the claim of the assessee having regard to the accounts of the assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill 2006 and the CBDT circular dated 28 December 2006 state that since the existing provisions of Section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a considerable dispute between tax payers and the department on the method of determining such expenditure. It was in this background that Sub Bennett Property Holdings Company Ltd. 8 ITA No. 247/Mum/2024 We note that it is evident from the extracted part of the assessment eferred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule 8D of the said Rules. It is only in view of the he Rules, that the Assessing Officer is not satisfied with the disallowance offered by the This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having ssessee, he is not satisfied with the disallowance offered by the Respondent in terms of section 14A(2) . It only on being dissatisfied with the above, does Rule 8D of counsel appearing for the Respondent is correct in his submission that satisfaction which was to be recorded by the Assessing Officer has to be clear and on an objective basis without any reference to Rule 8D. In support of his contention, our attention is drawn to the judgment of this Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010]_194 Taxman 203/328 ITR 81 while dealing with constitutional validity of Rule 8D of the said Rules, negatived the challenge "57. Now in dealing with the challenge it is necessary to advert to section (2) of Section 14A prescribes a uniform method for determining the amount of expenditure incurred in part of the total income only in a situation where 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. It therefore section (2) of Section 14A does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature of the claim made by the assessee. The Assessing Officer has to first consider the essee having regard to the accounts of the assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a o be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred taxable income. As a matter of fact, plaining the provisions of the Finance Bill 2006 and the CBDT circular dated 28 December 2006 state that since the existing provisions of Section 14A did not provide a method of computing the expenditure incurred in relation to income which did rt of the total income, there was a considerable dispute the method of determining such expenditure. It was in this background that Sub- section (2) was inserted so as to provide a uniform method applicable where the correctness of the claim of the assessee. Sub that the application of the methe would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred 58. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non prescribed expend. on the objective satisfaction of the Assessing miter in regard to the correctness of the claim of the assessee, having regard to the accounts of the asis When a statute postulates the satisfaction of the Ass conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated". Kerala AIR 1974 SC 2249 (at para 7 page 2252). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair pro under Article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under Sub As we shall note shortly hereafter, Sub incorporated the essential requirements of Sub 14A before the Assessing Officer proceeds to apply the method prescribed under Sub 11. Non-satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of the accounts su this case, the Assessing Officer had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules. The application of Rule 8D of the Rules would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee is not proper. 4.5 Therefore, respectfully following the finding of Bombay High Court in the case of Bombay Stock Exchange Ltd. (supra), in absence of any dissatisfaction whether express or implied recorded by the AO motu disallowance of expenditure by the assessee for ear Bennett Property Holdings Company Ltd. section (2) was inserted so as to provide a uniform method applicable where the Assessing Officer is not satisfied with the correctness of the claim of the assessee. Sub-section (3) clarifies that the application of the methe would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of non-taxable income. 58. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed expend. The invocation of the power is made conditional on the objective satisfaction of the Assessing miter in regard to the correctness of the claim of the assessee, having regard to the accounts of the asis When a statute postulates the satisfaction of the Assessing Officer "Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated". - M.A. Rasheed v. The State of a AIR 1974 SC 2249 (at para 7 page 2252). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair pro under Article 14 must be observed by the Assessing Officer when he arrives at his satisfaction under Sub-section (2) of Section 14A. As we shall note shortly hereafter, Sub-rule (1) of Rule 8D has also incorporated the essential requirements of Sub-section (2) of Section 14A before the Assessing Officer proceeds to apply the method prescribed under Sub-rule (2)." (emphasis supplied) satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of the accounts submitted by the assessee. In this case, the Assessing Officer had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules. The application of e 8D of the Rules would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee is not proper.” Therefore, respectfully following the finding of Bombay High Court in the case of Bombay Stock Exchange Ltd. in absence of any dissatisfaction whether express or recorded by the AO on the correctness of claim of the disallowance of expenditure by the assessee for ear Bennett Property Holdings Company Ltd. 9 ITA No. 247/Mum/2024 section (2) was inserted so as to provide a uniform method Assessing Officer is not satisfied with the section (3) clarifies that the application of the methe would be attracted even to a situation where the assessee has claimed that no expenditure at taxable income. 58. Parliament has provided an adequate safeguard to the invocation of the power to determine the expenditure incurred in taxable income by adoption of the The invocation of the power is made conditional on the objective satisfaction of the Assessing miter in regard to the correctness of the claim of the assessee, having regard to the accounts of the asis When a statute postulates the satisfaction of essing Officer "Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the M.A. Rasheed v. The State of a AIR 1974 SC 2249 (at para 7 page 2252). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under Article 14 must be observed by the Assessing Officer when section (2) of Section 14A. rule (1) of Rule 8D has also section (2) of Section 14A before the Assessing Officer proceeds to apply the method satisfaction with the disallowance offered by the assessee has to bmitted by the assessee. In this case, the Assessing Officer had not carried out the aforesaid exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules. The application of e 8D of the Rules would only arise once the Assessing Officer is not satisfied on an objective criteria in the context of its accounts, that suo Therefore, respectfully following the finding of the Hon’ble Bombay High Court in the case of Bombay Stock Exchange Ltd. in absence of any dissatisfaction whether express or claim of the suo- disallowance of expenditure by the assessee for earning exempted income, the Assessing Officer is not Rule 8D of the Rules. Accordingly, the disallowance made by the Assessing Officer invoking Rule 8D is hereby deleted. Since, we have already allowed the ground No. 2 of the appeal in assessee , therefore, the other grounds are rendered merely academic. 5. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on Sd/- (RAJ KUMAR CHAUHAN JUDICIAL MEMBER Mumbai; Dated: 30/05/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Bennett Property Holdings Company Ltd. he Assessing Officer is not justified in invoking Rule 8D of the Rules. Accordingly, the disallowance made by the Assessing Officer invoking Rule 8D is hereby deleted. Since, we have already allowed the ground No. 2 of the appeal in therefore, the other grounds are rendered merely In the result, the appeal of the assessee is allowed. nced in the open Court on 30/05 Sd/ RAJ KUMAR CHAUHAN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Bennett Property Holdings Company Ltd. 10 ITA No. 247/Mum/2024 justified in invoking Rule 8D of the Rules. Accordingly, the disallowance made by the Assessing Officer invoking Rule 8D is hereby deleted. Since, we have already allowed the ground No. 2 of the appeal in favour of the therefore, the other grounds are rendered merely In the result, the appeal of the assessee is allowed. /05/2024. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai