Appeal details
Counselvise Citation
[2023] 100 COUNSELVISE.COM (IT) 4706 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-12-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
05-11-2023
Assessment Year
2016-2017
Appeal Filed On
17-07-2023
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .5 63 /A h d / 20 23 ( A s se ss m e nt Y e a r : 20 16- 17 ) Y e s h a E le ctr ic a l s P vt. L td . , C - 2/1 8, I nd us tr ia l Es t at e, G or w a d , V a do d ar a- 3 9 00 16 V s . A s s is ta nt C o mm i ss i on e r of I nc o m e Ta x, C ir cl e - 2 ( 1) ( 2) , V a d o da r a [ P A N N o. A A A C Y 0 66 1L ] (Appellant) .. (Respondent) Appellant by : Shri M. J. Shah & Shri Rushin Patel, A.Rs. Respondent by: Ms. Saumya Pandey Jain, Sr. D.R. D a t e of H ea r i ng 06.11.2023 D a t e of P r o no u n ce me nt 13.12.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2023-24/1054100258(1) vide order dated 04.07.2023 passed for Assessment Year 2016-17. 2. The assessee has taken the following grounds of appeal:- “1. The Learned C.I.T. (Appeals) has erred in law and on facts of the case in upholding the action of the Assessing Officer of involving the provisions of section 14A r.w.r. 8D. 2. The appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing, if need arise.” ITA No. 563/Ahd/2023 Yesha Electricals Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 2– 3. The brief facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee company had made investments from which the assessee claimed exempt income under Section 10 of the Act. Dividend income of Rs. 2,40,10,774/- was claimed to be exempt by the assessee and hence not included in the total income of the assessee. During the course of assessment proceedings, the assessee submitted that it is a cash rich company and having sufficient surplus funds as part of reserves and surplus. The assessee also submitted that the net profit before tax for the year under consideration is Rs. 12,44,79,640/- and therefore, the assessee had sufficient funds to make investments yielding exempt income. However, the Assessing Officer was of the view that the provisions of Section 14A r.w.r. 8D are attracted in the instant case and accordingly, the Assessing Officer worked out a disallowance of Rs. 42,31,515/- under section 14A of the Act. However, since the assessee had disallowed a sum of Rs. 7,85,094/- in the computation of income relating to exempt income, the Assessing Officer made net disallowance of Rs. 34,46,421/-. 4. In appeal, the Ld. CIT(A) partly allowed the appeal of the assessee by holding that on perusal of balance sheet of assessee, it is found that the assessee has sufficient own funds consisting of share capital, reserves and surplus which are in excess of the investments made. Accordingly, he directed that disallowance made under Rule 8D(2)(ii) be deleted. Further, Ld. CIT(A) also observed that the Assessing Officer had included all investments in the calculation of disallowance under Rule 8D irrespective of the fact that some investments have yielded taxable income in the hands of the assessee. Accordingly, the Ld. CIT(A) directed that investments yielding taxable income ITA No. 563/Ahd/2023 Yesha Electricals Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 3– should be excluded while calculating disallowance under Section 14A of the Act. 5. The assessee is in appeal before us against the order of Ld. CIT(A) on the ground that CIT(A) has erred in upholding the action of the Assessing Officer while invoking to provision of Section 14A r.w.r. 8D of the Act. Before us, at the outset the Counsel for the assessee submitted on identical set of facts, the ITAT Ahmedabad in assessee’s own case for A.Y. 2017-18 in ITA No. 15/Ahd/2023 has allowed the appeal of the assessee. Accordingly, it was submitted that the assessee’s case is directly covered by order of ITAT Ahmedabad in assessee’s own case for immediately succeeded A.Y. 2017-18 and accordingly, submitted that the aforesaid addition under Section 14A r.w.r. 8D may be directed to be deleted in light of observations made by ITAT, Ahmedabad in assessee’s own case for succeeding Assessment Year 2017-18. It would be useful to reproduce the relevant extract of the ruling for ready reference:- “8. The argument of the ld.counsel for the assessee was that it had been clearly pointed out to the AO that all expenses pertaining to the investment made by the assessee, which had earned or were capable of earning exempt income by way of dividend, had been disallowed by the assessee, be that in relation to management fees to PMS, DEMAT charges etc. so much so, even 5% of the Managing Director’s remuneration, who was taking managerial decision; the expenditure incurred on telephone which was used for investment purpose and entire salary of accountant was disallowed by the assessee under section 14A of the Act, resulting in total disallowance of Rs.6,56,966/-. He pointed out that it was also explained that besides the aforesaid expenses no other expenses of manpower, telephone, stationery needed to be involved for making/managing the investments. That, since there were sufficient own funds available, even interest expense was not disallowable. It was explained that investment related expenses were primarily fixed in nature and had no direct link with the activity. That all possible investment related expenses had been disallowed by the assessee as relating to PMS and such others. Having so pointed out that, the ld.counsel for the assessee submitted that the AO recorded his dissatisfaction with the assessee’s claim in very general terms, merely stating at para 4.1 that the investment decisions were very complex in nature, ITA No. 563/Ahd/2023 Yesha Electricals Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 4– they required substantial market research, day-to-day analysis of market trends and decisions etc. and he also required huge investment in shares and consequential blocking of funds. He further pointed out that the rest of the dissatisfaction against the claim of the assessee, noted by the AO, related to interest expenditure incurred onloans allegedly utilized for making investment. 9. The ld.counsel for the assessee contended that having huge surplus funds, presumption was that surplus funds have been used for making investment, and there was no occasion for any interest to be disallowed, which he pointed out was settled position of law by the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466 (SC). Therefore the AO’s dissatisfaction with the interest expenses not being disallowed was, he stated not in accordance with law. He, thereafter, stated that the AO has not stated as to how on going through the accounts of the assessee he found the assesses claim of expenses of Rs. 6,59,966/- relating to exempt income as being incorrect. He pointed out that the AO in fact has not even gone through the accounts for arriving at his dissatisfaction with the claim of the assessee. He, therefore, stated that the dissatisfaction of the AO with the assesses claim of disallowable expenses u/s 14A of the Act was not in accordance with law, and invocation of Rule 8D of the Rules, therefore, was against the provision of law. 10. In this regard, he referred to various decision of the ITAT as well as Hon’ble High Court, which were placed before us in the Index running from ‘A’ to ‘J’, more particularly, our attention was drawn to the decision of Hon’ble Gujarat High Court in the case of Pr.CIT Vs. Gujarat State Fertilizers & Chemicals Ld., wherein he pointed out that the Hon’ble Gujarat High Court had categorically stated that having regard to section 14A of the Act before invoking Rule 8D, the AO is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure, in relation to the income which does not form part of the total income. He drew our attention to para 18 of the said order, which reads as under: “The language of section 14A of the Act is plain and clear. Before invoking rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisfaction which is a safeguard provided in section 14A should not be overlooked before going to rule 8D. In such circumstances, we are not impressed by the submission canvassed on behalf of the Revenue that once there are fixed funds, rule 8D would be attracted automatically.” 11. The ld.counsel for the assessee, during the course of arguments also referred to the decision of the ITAT in Edelweiss Financial Services Ltd. vs DCIT in ITA No.2467-2470 and 2478/M/22 dated30-11-22, wherein he pointed out that identical general observations of the AO ,of huge investment involving huge expenditure, were held by the ITAT as not being sufficient for invoking Rule 8D of the Rules. ITA No. 563/Ahd/2023 Yesha Electricals Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 5– 12. The ld.DR on the other hand, pointed out that the onus was on the assessee to prove that the entire expenses pertaining to earning of exempt income had been disallowed by it. Her contention was that the assessee had merely furnished details of expenditure disallowed without pointing out as to how only these expenses pertained to earning of exempt income and not any other administrative expenses. She, therefore, stated that the satisfaction recorded by the AO was sufficient for invoking Rule 8D of the IT Rules. 13. Having heard both the parties and after carefully going through the orders of the authorities below, we are in complete agreement with the ld.counsel for the assessee that the AO had failed to comply with the conditions set out in law prior to invoking Rule 8D of IT Rules for computing disallowance of expenses u/s 14A of the Act. The AO, we hold, has not recorded the requisite satisfaction about the incorrectness of the claim of the assessee. There is no dispute with regard to the interpretation of provision of section 14A(2) of the Act; that the AO can invoking rule 8D of the Rules for computing expenses disallowable u/s 14A of the Act, only after rejecting assesses claim of expenses relating to exempt income. His dissatisfaction with the assesses claim being arrived at having regard to its accounts. The language of the section is also clear that the primary onus is on the AO to demonstrate that claim of the assessee was incorrect. This is evident from a plain reading of the section itself as under: 14A. (1) [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine 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. .... ..... .... .... 14. In the present case, it is evident from the satisfaction recorded by the AO of the assesses claim of expenses relating to exempt income not being correct, that it is merely based on general observations with no reference to the accounts of the assessee. The assessee had claimed such expenses to amount to Rs.6,56,966/- and had given details of nature of such expenses also. The AO, we find, has expressed his dissatisfaction with the claim by giving general reasons stating that investment decisions were very complex in nature, they required substantial market research, day-to-day analysis of market trends and decisions etc. and also required huge investment in shares and consequential blocking of funds. He has not recorded any dissatisfaction having regard to the accounts of the assessee. ITA No. 563/Ahd/2023 Yesha Electricals Pvt. Ltd. vs. ACIT Asst.Year –2016-17 - 6– 15. The satisfaction of the AO, has to be an objective satisfaction, and it cannot be based on general statements made; statements which are not supported with any facts or figures. Therefore, we have no hesitation in holding, that the satisfaction recorded in the present case by the AO did not fulfill the requirements prescribed by the law under section 14A(2) of the Act for invoking Rule 8D of the IT Rules for the purpose of computing the expenses disallowable under section 14A of the Act. The disallowance, therefore, computed by the AO by invoking Rule 8D in the present case, amounting to Rs.6,56,966/- is therefore held not to be in accordance with law and is directed to be deleted. The ground of appeal of the assessee is allowed. 16. In the result, the appeal of the assessee is allowed.” 6. We observe that the case of the assessee is directly covered by aforesaid order passed in assessee’s own case for A.Y. 2017-18 in ITA No. 15/Ahd/2023. Respectfully following the aforesaid order, the disallowance computed by the Assessing Officer under Section 14A r.w.r. 8D is directed to be deleted. 7. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 13/12/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/12/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
