VISHAL ASHOK RAMSINGHANI, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 314/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2626 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 23-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 13-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJN EESH K ARVIND
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA IN, JM ./ I.T.A. NO. 314/MUM/2015 ( / ASSESSMENT YEAR: 2011-12) VISHAL ASHOK RAMSINGHANI 903, RAHEJA CHAMBERS, 213, NARIMAN POINT, FREE PRESS JOURNAL MARG, MUMBAI-400 021. / VS. DCIT, CIRCLE 3(1). MUMBAI. ./ ./PAN/GIR NO. AAAPR 5595H ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VIMAL PUNMIYA / RESPONDENT BY : SHRI RAJNEESH K. ARVIND / DATE OF HEARING : 21/09/2016 !'# / DATE OF PRONOUNCEMENT : 07/10/2016 $% / O R D E R PER SANDEEP GOSAIN, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 7, DATED 31. 10.2014 ON THE GROUNDS OF APPEAL MENTIONED HEREIN BELOW. 2 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) 7, MUMBAI HEREINAFTER REFERRED TO AS CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING T HE DISALLOWANCE OF EXPENSES U/S 14A OF RS 5,80,904 . 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) 7, MUMBAI HEREINAFTER REFERRED TO AS CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING T HE DISALLOWANCE OF EXPENSES U/S 14A OF RS 5,80,904 WITHOUT CONSIDERING THE FACT THAT YO UR APPELLANT'S INDIRECT EXPENSES (EXCLUDING DEPRECIATION) WERE ONLY RS 1,92,507. THE DISALLOWANCE U/S 14A CANNOT EXCEED THE EXPENDITURE INCURRED BY YOUR APPELLANT. 1.3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) 7, MUMBAI HEREINAFTER REFERRED TO AS CIT(A) ERRED ON FACTS AND IN LAW IN NOT CONSIDER ING THE FACT THAT NO DISALLOWANCE CAN BE MADE IN RESPECT OF DEPRECIATION AS IT IS A STATU TORY ALLOWANCE U/S 32 AND NOT AN EXPENDITURE. 7. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 3: THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED BY ASSESSEE ON 26.09.2011 DECLARING TOTAL INCOME OF RS.48,60,14 0/-. THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICE AND SEE KING REPLY OF THE ASSESSEE, ASSESSMENT ORDER WAS PASSED BY DCIT THEREBY MAKING DISALLOWANCE/ ADDITIONS WHILE ASSESSING TOTAL INCOME OF THE ASSESSEE. THE A O ALSO MADE DISALLOWANCE U/S 14A READ WITH RULE 8D OF INCOME TAX ACT OF RS.5,80, 904/-. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREF ERRED APPEAL BEFORE CIT(A) HOWEVER THE CIT(A) AFTER HEARING BOTH THE PARTIES H AD PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. HOWEVER, THE CIT(A) CONFIRMED THE ADD ITIONS MADE BY AO U/S 14A READ WITH RULE 8D OF RS.5,80,904/-. 3 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT 4. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE PREFE RRED PRESENT APPEAL BEFORE US ON THE GROUND MENTIONED HERE IN ABOVE. GROUND NO.1.1 TO 1.3 5. SINCE ALL THE GROUNDS RAISED BY THE ASSESSEE ARE INTER-CONNECTED AND INTER- RELATED THEREFORE WE THOUGHT IT FIT TO DISPOSE OFF THE SAME THROUGH THE PRESENT COMMON ORDER. AT THE VERY OUTSET, LD. AR APPEARING ON BEHALF OF ASSESSEE SUBMITTED THAT THE ASSESSEE HAD EARNED EXEMPT INCOM E OF RS.14,99,008/- AS DIVIDEND INCOME ON SHARES AND RS.1500/- ON ACCOUNT OF INTEREST ON FDS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD MADE SUO MO TTO DISALLOWANCE OF RS.32,643/- U/S 14A OF THE ACT WITH RESPECT TO EXP ENDITURE RELATABLE TO THE EXEMPT INCOME. LD. AR FURTHER SUBMITTED THAT MAJOR INVESTM ENTS MADE BY THE ASSESSEE WERE IN GROUP COMPANIES ONLY. THE ACTIVITIES RELAT E TO INVESTMENT IN SHARES OF A QUOTED COMPANY AND THE TAX FROM INVESTMENTS WERE MA NAGED BY THE ASSESSEE HIMSELF. LD. AR FURTHER SUBMITTED THAT SUB SECTION (2) OF SECTION 14A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE AO IS TO DETER MINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME. IT WAS ALSO ARGUED THAT AO WAS REQUIRED TO DETERMINE T HE AMOUNT OF SUCH EXPENDITURE ONLY IF THE AO, HAVING REGARD TO THE ACCOUNTS OF TH E ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT WAS FURTHER 4 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT ARGUED THAT IN THE PRESENT CASE THE AO HAS NOT RECO RDED HIS SATISFACTION AND HAS NOT EVEN INDICATED COGENT REASONS FOR MAKING DISALLOWAN CE U/S 14A READ WITH RULE 8D. WHEREAS THE AO WAS DUTY BOUND TO LIST DOWN REASONS FOR REJECTING THE CLAIM OF THE ASSESSEE. LD. AR FURTHER RELIED UPON THE FOLLOWING CITATIONS NAMELY: 1. J.K. INVESTORS (BOMBAY) LTD. VS. ACIT IN ITA NO .7858/MUM/2011 FOR AY 2008-09. 2. MAXOPP INVESTMENT LTD. VS. CIT 2011 203 TAXMAN 364 3. RAJ SHIPPING AGENCIES LTD VS. ACIT [2013] 38 TA XMANN.COM 345 [MUM] 4. DCIT VS DBH INTERNATIONAL (P.) LTD [2015] 55 TA XMANN.COM 424 (DELHI- TRIB.) 5. KALYANI STEELS LTD. VS ADD. CIT ITA NO.1733/PN/ 2012 6. DCIT VS. JINDAL PHOTO LIMITED ITA NOS. 814/DEL. /2011. 6. APART FROM THE ABOVE, LD. AR SUBMITTED THAT THE REVENUE AUTHORITIES HAVE APPLIED SECTION 14A READ WITH RULE 8D IN AN MECHANI CAL MANNER WHEREAS IT IS MANDATORY TO APPLY SECTION 14A AND COMPUTE DISALLOW ANCE UNDER RULE 8D AFTER GIVING REASONS FOR REJECTING ASSESSEES CLAIM. LD. AR FURTHER SUBMITTED THAT AO FAIL TO CONSIDER THAT THE TOTAL INDIRECT EXPENSES ( EXCLUDING DEPRECIATION) OF RS.1,92,507/- (THE DETAILS HAVE ALREADY BEEN GIVEN AT PAGE NO.29 OF THE PAPER BOOK). LD. AR FURTHER ARGUED THAT SECTION 14A DEALS ONLY WITH THE EXPENDITURE AND 5 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT NOT WITH THE STATUTORY ALLOWANCES ADMISSIBLE TO THE ASSESSEE AND MORE PARTICULARLY STATUTORY ALLOWANCES U/S 32 IS NOT AN EXPENDITURE. 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 8. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES ON THIS GROUND AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS O F THE CASE IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY CIT(A) WHILE DEALING WITH THE SAID ISSUE: GROUND NO.2 I FIND THAT THE APPELLANT HAS EARNED EXEMPT INCOME OF RS.14,99,008/- ON ACCOUNT OF DIVIDEND ON SHARES. THE APPELLANT HAS MA DE A SUO MOTU DISALLOWANCE OF RS.32 ,643/ - U/S. 14A. IN MAXOPP INVESTMENT LTD. V. CIT [2011] 15 TAXMANN. COM 390 (DELHI), THE COURT EXPLAINED THE METHOD PRESCRIBED BY RULE 8D(2) AS UNDER: IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, IT IS FO UND THAT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITU RE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDI TURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT. THE FORMULA ESSENTIALLY APPORTIONS THE AMOUNT OF EXPEND ITURE BY WAY OF INTEREST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAU SE (ILL INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE T OTAL INCOME TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. 6 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT THE THIRD COMPONENT IS AN ARTIFICIAL FIGURE-O.5% OF THE AVERAGE VALUE OF THE INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEETS OF THE ASSESSEE, ON THE FIRST CLAY AND THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE AGGREGATE OF THESE THREE COMPONENTS WHI CH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXEMPT INCOME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECTION 14A. IT IS, THEREFORE, CLEAR THAT IN TERMS OF THE SAID RULE, THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO AS PECTS - (A) DIRECT AND (B) INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY VIRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATED ABOVE. IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF THUMB FIGURE OF 0.5% OF THE AVERAGE VALUE OF THE IN VESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS-TAKEN. IN VIEW OF THE ABOVE, THE AO HAS RIGHTLY COMPUTED T HE DISALLOWANCE U/S.14A R.W.R. 8D AT RS.6,13,547/-. AS THE ASSESSEE HAS MADE AN ADHOC DISALLOWANCE OF RS. 32,643/ -, THE AO HAS RIGHTLY M ADE AN ADDITION OF THE BALANCE AMOUNT OF RS.5,80,904/- (RS.6,13,547 - RS.3 2,643) U/S.14A. THUS THE ADDITION OF RS.5,80, 904/ - MADE BY THE AO IS C ONFIRMED. 9. AFTER CONSIDERING AFORE MENTIONED ORDER PASSED B Y CIT(A) AS WELL AS HEARING BOTH THE PARTIES WE ARE OF THE CONSIDERED V IEW THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD EARNED RS.14,99,008/- AS DIV IDEND ON SHARES AND RS.1500/- AS INTEREST ON FDS WHICH ARE REFLECTED IN DOCUMENTS S UBMITTED BY THE ASSESSEE. IN THE PRESENT CASE THE ASSESSEE HAD MADE SUO MOTTO DISALL OWANCE OF RS.32,643/- BEING EXPENDITURE RELATABLE TO EXEMPT INCOME. HOWEVER THE LD. AO MADE DISALLOWANCE OF RS.5,80,904/-. HOWEVER, WHILE PASSING THE SAID ORDE R THE AO HAS NOT RECORDED 7 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND MOREOVER IT IS A PREREQUISITE REGARDING INVOCATION OF SECTION 14A READ WITH RULE8D THAT THE AO HAS TO EXAMINE THE ACCOUNTS OF THE ASSE SSEE FIRST AND THEN, IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM, ONLY T HEN, THE AO COULD INVOKE RULE 8D. HOWEVER NO SUCH EXAMINATION WAS MADE OR SATISFACTIO N IS RECORDED BY AO IN THIS CASE. IT WAS NOTICED THAT THE AO HAS NOT RECORDED H IS SATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE BUT HE HAS EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D. WE HAVE NOTICED THAT TH E ASSESSEE ITSELF MADE DISALLOWANCE BUT THE AO HAS NOT INDICATED COGENT RE ASONS WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR N O EXPENDITURE. IN THE ENTIRE ORDER THE AO HAS NOT RECORDED ANY FINDING WITH REGARD TO THE ANY DEFICIENCY OR DEFECT IN THE BOOKS OF ACCOUNTS NOR ANY DEFICIENCY OR DEFECT WAS RECORDED IN RESPECT OF CLAIM OF THE ASSESSEE U/S 14A. WE HAVE ALSO NOTICED THAT THE AO HAS NOT RECORDED ANY SATISFACTION THAT THE ASSSSEES CLAIM U/S 14A WAS I NCORRECT. SIMILARLY THE CIT(A) WHILE DEALING WITH THE SAID ISSUE HAS ONLY RECORDED THE JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT [2011] 15 TAXMAN.C OM 390 (DELHI) THE LD. CIT(A) HAS ALSO FAILED TO APPRECIATE WHETHER THE AO HAS RIGHTLY COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE8D AND HAD CONFI RMED THE ADDITION MADE BY AO. THE LD. CIT(A) HAS ALSO FAILED TO APPRECIATE WH ETHER THE AO HAS NOT RECORDED ANY OBJECTIVE SATISFACTION WITH REGARD TO THE CORRE CTNESS OF THE CLAIM WHICH IS 8 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT MANDATORY REQUIREMENT IN TERMS OF SECTION 14A OF T HE ACT AND THEREFORE, ACTION OF INVOKING RULE 8D TO COMPUTE THE IMPUGNED DISALLOWAN CE IS UNTENABLE. WE FOUND RELIANCE IN THE FOLLOWING JUDGMENTS: 1. J.K. INVESTORS (BOMBAY) LTD. VS. ACIT IN ITA NO.785 8/MUM/2011 FOR AY 2008-09 WHICH HELD AS UNDER: AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY VARIO US JUDGEMENTS, IT IS IMPERATIVE THAT THE AO CAN INVOKE RULE 8D ONLY WHEN HE RECORDS SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE. THE CONDITION PRECEDENT FOR THE AO ENTERI NG UPON DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. THEREFORE, IT IS ALL THE MORE NECESSARY T HAT AO HAS TO EXAMINE THE ACCOUNTS OF ASSESSEE FIRST AND THEN IF HE IS NOT SA TISFIED WITH THE CORRECTNESS OF THE CLAIM, ONLY HE CAN INVOKE RULE 8D. NO SUCH EXAMINAT ION WAS MADE OR SATISFACTION WAS RECORDED BY AO IN THIS CASE. IT WAS NOTICED THA T THE ASSESSING OFFICER HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AT ALL AND HE HAS STRAIGHTWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D ON THE PRESUMP TION THAT PORTFOLIO 9 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT MANAGEMENT INVOLVES AT LEAST 2% OF CHARGES. DISALLO WANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WH ERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INC URRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. WE NOTICE THAT ASSESSE E ITSELF DISALLOWED THE INTEREST WHICH IS DIRECTLY APPLICABLE, DMAT CHARGES AND ADMI NISTRATIVE EXP ON ESTIMATION TOTALING TO RS.1,55,44,610. ASSESSEE IS A HUNDRED C RORE TURNOVER COMPANY. AO HAS NOT EXAMINED ANY EXPENDITURE CLAIMED IN P& L ACCOUN T SO AS TO RELATE TO EXEMPT INCOME, NOR GAVE A FINDING THAT ASSESSEE CLAIM IS N OT CORRECT FOR ANY REASON. RULE 8D CANNOT BE .INVOKED DIRECTLY WITHOUT SATISFYING A BOUT THE CLAIMS OR OTHERWISE. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. WE THEREFORE, ALLOW THE GROUND OF APPEAL.' 2. MAXOPP INVESTMENT LTD. VS. CIT 2011 203 TAXMAN 364 WHICH HELD AS UNDER: WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE AO WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. 3. RAJ SHIPPING AGENCIES LTD VS. ACIT [2013] 38 TAXMAN N.COM 345 [MUM] WHICH HELD AS UNDER : EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME [CONDITIONS PRECEDENT] - ASSESSMENT YEAR 2008-09 - WHETHER ASSESSING OFFICER 10 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT HAS TO EXAMINE ACCOUNTS OF ASSESSEE FIRST AND THEN IF HE IS NOT SATISFIED WITH CORRECTNESS OF CLAIM, ONLY HE CAN INVOKE RULE 8D - HELD, YES - WHETHER FURTHER, DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND - HELD, YES - WHETHER WHERE ASSESSING OFFICER HAD NOT RECORDED ANY SATISF ACTION WITH REFERENCE TO ACCOUNTS OF ASSESSEE OR CLAIM THAT NO EXPENDITURE W AS INCURRED, INVOCATION OF RULE 8D FOR DISALLOWING EXPENDITURE UNDER SECTION 14A ON ESTIMATION/PRESUMPTIVE BASIS DID NOT ARISE - HELD, YES 4. DCIT VS. DBH INTERNATIONAL (P.) LTD [2015] 55 TAXMA NN.COM 424 WHICH HELD AS UNDER: HELD- THE COMMISSIONER (APPEALS) HAS RIGHTLY OBSER VED THAT THE ASSESSING OFFICER DID NOT FIND ANY DEFICIENCY IN THE BOOKS OF ACCOUNT NOR ANY DEFICIENCY IN RESPECT OF THE CLAIM OF THE ASSESSEE UNDER SECTION 14A. IT IS ALSO FOUND THAT THE ASSESSING OFFICER HAS NOT EXPRESSED SATISFACTION WI TH THE ASSESSEE'S CLAIM UNDER SECTION 14A WAS INCORRECT (DELHI - TRIB.) AND WHICH IS A SINE QUA NON BEFORE INVOKING PROVISIONS OF SECTION 14A. IT IS NOT FOUND ANY INFIRMITY WHATSOEVER IN THE REASONED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND THEREFORE THE ORDER OF THE COMMISSIONER (APPEALS) IS CONFIRMED AND SO THE DEPARTMENTS APPEAL FAILS AND SO IS DISMISSED. [PARA 8] 11 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT 5. KALYANI STEELS LTD. VS ADD. CIT ITA NO. 1733/PN/201 2 WHICH HELD AS UNDER: ASSESSING OFFICER HAS NOT RECORDED ANY OBJECTIVE S ATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, WHICH IS MANDATORILY REQUIRED IN TERMS OF SECTION 14A(2) OF THE ACT AND THEREFORE HIS ACTION OF INVOKING RULE BD OF THE RULES TO COMPUTE THE IMPUGNED DISALLOWANCE IS UNTENABLE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET- ASIDE ON THIS ASPECT AND THE ASSESSING OFFICER IS DIRECTED TO RETAIN THE DISALLOWANCE U/S 14A OF THE ACT TO TH E EXTENT OF RS.5,00,000/-, AS RETURNED BY THE ASSESSEE. 6. DCIT V. JINDAL PHOTO LIMITED ITA NOS. 814/DEL./2011 WHICH HELD AS UNDER: FOR INVOKING RULE 8D THE AO MUST RECORD SATISFACT ION AS TO HOW THE CLAIM OF THE ASSESSEE IS INCORRECT. IF THAT IS NOT DONE, PROVISI ONS OF RULE 8D CANNOT BE INVOKED. AN AD HOC DISALLOWANCE CANNOT BE MADE UNDER RULE BD . THE ONUS IS ON THE AO TO ESTABLISH THAT EXPENDITURE HAS BEEN INCURRED FOR EA RNING EXEMPT INCOME. DISALLOWANCE U/S.14A CANNOT BE MADE ON THE BASIS OF PRESUMPTION THAT THE ASSESSEE MUST HAVE INCURRED EXPENDITURE TO EARN TAX -FREE INCOME. SINCE THE AO HAD NOT RECORDED SATISFACTION REGARDING THE ASSESSEE'S CALCULATION BEING INCORRECT AND SINCE SUCH SATISFACTION IS A PRE-REQUISITE FOR INVO KING RULE 8D, THE CIT(A) ERRED IN PARTIALLY APPROVING THE ACTION OF THE AO. 12 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT 10. IN VIEW OF THE AFORE MENTIONED FACTS AND CIRCUM STANCES WE ARE OF THE CONSIDERED VIEW THAT SECTION 14A READ WITH RULE 8D HAD BEEN APPLIED IN A MECHANICAL MANNER BY THE AO AND NO OBJECTIVE SATISF ACTION WAS RECORDED. BECAUSE OF THE REASON MENTIONED ABOVE, WE ARE OF THE CONSID ERED VIEW THAT THE ORDER OF REVENUE AUTHORITIES MAKING DISALLOWANCE IS SET ASID E AND THE MATTER IS REMANDED BACK TO THE FILE OF AO WITH A DIRECTION TO RECORD H IS OBJECTIVE SATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WHICH IS MANDATORY REQUIREMENT OF THE SECTION 14A (2) OF THE ACT AND TO PASS A FRESH OR DER OF ASSESSMENT AFTER KEEPING IN VIEW THE DIRECTIONS ISSUED FROM TIME TO TIME BY JUDICIAL AUTHORITIES AS MENTIONED ABOVE AND AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH OCTOBER, 2016. SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED : 07.10.2016 PS. ASHWINI 13 ITA NO. 314/MUM/2015(A.Y. 2011-12) VISHAL ASHOK RAMSINGHANI VS. DCIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI