Kalyani Steels Ltd., V. Additional Commissioner of Income-tax,

ITA 648/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9315 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-01-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.648/PUN/2016 / ASSESSMENT YEAR : 2009-10 KALYANI STEELS LIMITED, MUNDHWA, PUNE 411036. PAN : AAACK7315D. . / APPELLANT V/S ADDL.COMMISSIONER OF INCOME TAX, RANGE 11, PUNE. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI DR. VIVEK AGGARWAL. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 7, PUNE DT.21.01.2016 FOR THE ASSESSMENT YEAR 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL AND STEEL BASED PRODUCTS, FORGINGS E TC., / DATE OF HEARING : 25.01.2018 / DATE OF PRONOUNCEMENT: 23.02.2018 2 ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 30.09 .2009 DECLARING LOSS OF RS.12,37,08,857/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, ASSESSMENT WAS FRAMED U/S 143 (3) OF THE ACT VIDE ORDER DT.23.12.2011 AND THE TOTAL LOSS WAS DETERMINED AT RS.11,35,96,545/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.21.01.2016 (IN APPEAL NO.PN/CIT(A)-7/R-11/91/2014-15) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1.1 THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOW ANCE OF AN ADDITIONAL AMOUNT OF RS. 83,67,445/- (OVER AND ABOV E OF RS.5,00,000/- DISALLOWED BY THE APPELLANT COMPANY IN ITS STATEMEN T OF TOTAL INCOME) AS EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME U/S.14A BY APPLYING RULE 8D WHI LE ASSESSING TOTAL INCOME AS PER REGULAR PROVISIONS OF THE INCOME TAX ACT, 1961 AND BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT, 1961. 1.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE LEARNED ASSESSING OFFICER HAD NOT RECORDED ANY SATISFACTION IN THE AS SESSMENT ORDER ABOUT THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF EXPEND ITURE MADE BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR AND HEN CE, THERE WAS NO REASON TO APPLY THE PROVISIONS OF RULE 8D FOR MAKIN G THE DISALLOWANCE U/S.14A AND ACCORDINGLY, THE ENTIRE ADDITION OF RS.83,67,445/- CONFIRMED BY THE LEARNED CIT(A) MAY KINDLY BE DELET ED. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE SOLE CONTR OVERSY IS WITH RESPECT TO DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX ACT . 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT ASSESSEE HAD CLAIMED INCOME FROM DIVIDEND OF RS.2,34,67,758/- AS BEING EXEMPT FROM TAX U/S 10(33) OF THE ACT AND HAD SUO MOTU DISALLOWED EXPENSES OF RS.5,00,000/- UNDER SEC.14A R.W. RULE 8D OF THE INCOME TAX RULES. ASSESSEE WAS ASKED TO JUSTIFY TH E CLAIM OF 3 DISALLOWANCE WORKED OUT BY IT. ASSESSEE INTER-ALIA SUBMITT ED THAT THE INVESTMENTS ARE OUT OF INTERNAL ACCRUAL AND IT HAD NOT B ORROWED ANY LOANS FOR MAKING ANY NEW INVESTMENTS. IT WAS FURTHER SUB MITTED THAT THE TAX FREE INCOME HAS BEEN EARNED FROM LONG TERM INVES TMENTS AND THAT NO EXPENSES WERE INCURRED FOR EARNING EXEMPT INCO ME BUT HOWEVER, ASSESSEE HAD SUO MOTU DISALLOWED THE EXPENSES OF RS.5,00,000/-. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUN D ACCEPTABLE TO AO. AO BY FOLLOWING THE METHODOLOGY PRESCRI BED UNDER RULE 8D OF THE INCOME TAX RULES WORKED OUT THE DISALLOWAN CE U/S 14A OF THE ACT AT RS.93,67,445/-. AGGRIEVED BY THE ORD ER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER : 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND LAW APPARENT FROM THE RECORD. THE ONLY DISPUTE IS IN RESPECT OF DISALLOWANCE UNDER RULE 8D(2)(III). THE RULE 8D(2)(III) TAKES CARE OF ADMINISTRATIVE EXPENSE OR OTHER EXPENSES WHICH MIGHT INCUR TO EARN EXEMPT INC OME. THE APPELLANT ITSELF HAS DISALLOWED EXPENSE OF RS. 5 LAKH TOWARDS THE GENERAL /ADMINISTRATIVE EXPENSES IN EARNING THE DIVIDEND IN COME. 4.2 THE AO HAS STATED THAT, IN PARA 4.1 OF THE ASSE SSMENT ORDER DATED 23.12.2011 THAT, THE DISALLOWANCE OF RS. 5 LAKH IS STATED TO HAVE B EEN COMPUTED ON THE BASIS OF NATURE OF EXPENSES AND EST IMATES APPLIED IN THE ALLOCATION OF THE EXPENDITURE INCLUD ING THE INTEREST TO THE INDENTIFIED EXEMPT INCOME EARNED BY THE ASSE SSEE. IT IS FURTHER CLAIMED THAT THE TAX AUDITOR HAS ALSO REVIE WED THE SAID COMPUTATION ON THE BASIS OF ESTIMATES APPLIED TO ID ENTIFY EXPENSES. IT WAS BROUGHT TO THE NOTICE OF THE ASSES SEE'S REPRESENTATIVE THAT HAVING REGARD TO THE ACCOUNTS O F THE ASSESSEE, 'I AM NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELA TION TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UND ER THE I. T. ACT. THE ASSESSEE'S AUDITOR IN HIS REPORT HAS ALSO GIVEN A NOTE THAT THE COMPUTATION IS SUBJECT TO SCRUTINY BY THE ASSESSING OFFICER AT THE TIME OF INCOME TAX ASSESSMENT PROCEE DINGS. THE ASSESSEE WAS THEREFORE, ASKED TO SUBMIT THE COMPUTA TION OF DISALLOWANCE U/S. 14A AS PER RULE 8D OF THE I. T. R ULES. THE ASSESSEE'S REPRESENTATIVE HAS SUBMITTED THE COMPUTA TION AS UNDER:- 'AMOUNT OF DEDUCTION IN ADMISSIBLE IN TERMS OF SECT ION 14A IN RESPECT OF THE EXPENDITURE INCURRED IN RELAT ION TO 4 TAX FREE INCOME WHICH DOES NOT FORM PART OF THE TOT AL INCOME.. AND ASSESSEE SUBMITTED CALCULATION OF DISALLOWANCE UNDE R RULE 8D OF RS.88,67,445/- TO ASSESSING OFFICER. 4.3 THE APPELLANT HAS NOT GIVEN BIFURCATION OF DISALLOWANC E OF RS.5 LAKH TO THE AO. THE AUDITOR ALSO GIVEN CERTIFICATE WITH RIDER THAT COMPUTATION IS SUBJECT TO SCRUTINY. THIS SHOWS THAT THE DISALLOWANCE OF RS.5 LAKH IS SUBJECT TO SCRUTINY. THE APPELLANT HAS NOT GIVEN THE EXACT BASIS OF THE DISALLOWANCE. DUE TO THESE FACT THE CA SE OF THE APPELLANT FOR AY 2008-09 & 2010-11 IS DIFFERENT. THOUGH, AMOUNT O F DISALLOWANCE OF RS.5 LAKH IS SAME. FURTHER, THE APPELLANT HAS GIVEN TO AO THE AMOUNT DISALLOWANCE OF RS. 88,67,445/- AS PER RULE 8D. 4.4 THE APPELLANT HAS STATED THAT THERE WAS NO DOMI NANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRE D AND EXEMPTED INCOME. THEREFORE THERE CANNOT BE ANY AD-HOC DISALL OWANCE BY TAKING SUB GROUND NO. 1.2. THE CONTENTION OF THE APPELLANT HAS NO FORCE AS THE APPELLANT ITSELF HAS DISALLOWED AMOUNT OF RS.5 LAKH . THE APPELLANT ALSO CONTENDS THAT DISALLOWANCE UNDER RULE 8D GIVES UN R EALISTIC FIGURE OF EXPENDITURE, THE CONSTITUTIONAL VALIDITY OF RULE 8D R.W.S SECTION 14A HAS BEEN UPHELD IN CASE OF GODREJ BOYCE MFG. CO. LTD VS DC IT (2010) 328 ITR 81 (B0M). IN CIRCUMSTANCES NOT ACCEPTING DISALL OWANCE MADE BY THE ASSESSEE, AO IS BOUND TO DISALLOW EXPENDITURE IN AC CORDANCE WITH RULE 8D AND HENCE SUB GROUND NO. 1.2 IS DISMISSED. 4.5 THE APPELLANT ALSO CONTENTS THAT DISALLOWANCE O F RS.5 LAKH IS ADEQUATE. THE AUDITOR OF APPELLANT ALSO DOUBTED THE ADEQUACY OF THE INADMISSIBLE EXPENSES IN RELATION TO TAX FREE INCOM E. WHICH REMAIN UNEXPLAINED AND THE AO BEING SATISFIED INVOKED RULE 8D. IN VIEW OF THESE ACTIONS OF AO OFFICER INVOKING RULE 8D IS UPH ELD AND SUB GROUND NO. 1.1 IS DISMISSED. 4.6 THE APPELLANT CONTENDS THAT THE AO DISALLOWED U NDER RULE 8D OF RS. 88,67,445/-. OVER AND ABOVE THE AO ALSO ADDED RS. 5 LAKH ALREADY DISALLOWED BY APPELLANT AND TAKEN SUB GROUND NO. 1. 3 . THE DISALLOWANCE UNDER RULE 8D IS RESTRICTED TO 88,67,4 45/- THERE IS NO NEED FOR SEPARATE DISALLOWANCE OF RS.5 LAKH. THE AO IS D IRECTED TO COMPUTE INCOME ACCORDINGLY AND SUB GROUND NO. 1.3 IS ALLOW. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APP EAL BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFOR E AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IN ASSESSMENT Y EARS 2008- 09, 2010-11 AND 2011-12 ON IDENTICAL FACTS, THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR. HE PLACED O N RECORD THE COPY OF THE AFORESAID DECISIONS. HE FURTHER SUBMITTED THAT IN THE 5 PRESENT CASE, NO SATISFACTION HAS BEEN RECORDED BY THE AO BEFORE PROCEEDING TO DISALLOW THE EXPENSES U/S 14A OF THE ACT. HE SUBMITTED THAT IN THE ABSENCE OF ANY SATISFACTION BEING RECORDED BY THE AO, NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR AND FOR THIS PR OPOSITION, HE RELIED ON THE DECISION RENDERED BY THE HONBLE PUNJA B AND HARYANA HIGH COURT IN THE CASE OF PUNJAB TRACTORS LIMITED VS. CIT REPORTED IN (2017) 398 223 (P & H). HE ALSO PLACED RELIANCE ON THE DEC ISION OF HONBLE APEX COURT IN THE CASE OF GODREJ & BOYCE MANUFA CTURING COMPANY LIMITED VS. DCIT REPORTED IN (2017) 394 ITR 449 (SC). HE FURTHER SUBMITTED THAT ASSESSEE HAS SUFFICIENT INTEREST FRE E FUNDS FOR MAKING THE INVESTMENTS AND IN SUPPORT OF WHICH, HE POINTED TO THE COPY OF BALANCE SHEET PLACED AT PAGE NOS. 20 TO 50 OF THE PAPER BOOK. 6. LD.D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND TOOK US THROUGH THE FINDINGS OF AO AND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO DISALLOWANCE OF EXPENSES U/S 14A R.W. RULE 8D OF THE ACT. WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2008-09, 2010-11 AND 2011-12. WE FIND THAT THE CO-ORDINATE BENC H OF THE TRIBUNAL IN ASSESSEES OWN CASE WHILE DECIDING THE ISSUE IN A.Y. 2011- 12 IN ITA NO.441/PUN/2015 ORDER DT.20.09.2017 HAS DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RE SPECT TO DISALLOWANCE 6 OF RS.38,12,500/- U/S 14A OF THE ACT. THE PERUSAL OF THE BALANCE- SHEET WHICH IS PLACED AT PAGE 31 OF THE PAPER BOOK REVEALS THAT THE INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AN D RESERVES AND SURPLUS AGGREGATED TO RS.321.42 CRORES AS AGAINST T HE INVESTMENTS OF RS.83.24 CRORES MEANING THEREBY THAT THE AVAILABI LITY OF INTEREST FREE FUNDS ARE FAR IN EXCESS OF THE INVESTMENTS. WHEN T HE INTEREST FREE FUNDS ARE IN EXCESS OF INVESTMENTS, THERE IS PRESUM PTION THAT THE INVESTMENTS ARE OUT OF INTEREST FREE FUNDS AND THER EFORE NO DISALLOWANCE ON AMOUNT OF INTEREST IS CALLED FOR. 8. ON THE ISSUE OF PRESUMPTION THAT WHEN INTEREST F REE FUNDS AVAILABLE WITH THE ASSESSEE ARE IN EXCESS OF INVEST MENTS IT IS OUT OF INTEREST FREE FUNDS, WE FIND THAT HONBLE BOMBAY HI GH COURT IN THE CASE OF HDFC VS. DCIT REPORTED IN (2016) 383 ITR 529 (BO M) HAS OBSERVED AS UNDER : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CAS E OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE P RESUMPTION WHICH HAS BEEN LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECUR ITIES COMING OUT OF ASSESSEES OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTAN DING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOM E FUNDS ON INTEREST) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD.(SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HO LDING THAT THE TEST OF PRESUMPTION AS HELD BY THIS COURT IN RELIAN CE UTILITIES AND POWER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)( III) OF THE ACT WOULD APPLY WHILE CONSIDERING THE APPLICATION OF SE CTION 14A OF THE ACT. THE AFORESAID DECISION OF THIS COURT IN HD FC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED B Y THE REVENUE INASMUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST THAT ORDER ON THE OTHER I SSUE THEREIN, VIZ., BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PR EFERRED BY THE REVENUE ON THE ISSUE OF INVOKING THE PRINCIPLES LAI D DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) IN ITS AP PLICATION TO SECTION 14A OF THE ACT. THEREFORE, THE ISSUE WHICH AROSE FOR CONSIDERATION BEFORE THE TRIBUNAL HAD NOT BEEN DECI DED BY THIS COURT IN GODREJ AND BOYCE MANUFACTURING CO. LTD. (S UPRA). IT AROSE AND WAS SO DECIDED FOR THE FIRST TIME BY THIS COURT IN HDFC BANK LTD. (SUPRA). THUS, THERE IS NO CONFLICT AS SOUGHT TO BE MADE OUT BY THE IMPUGNED ORDER. THUS, IMPUGNED O RDER HAS PROCEEDED ON A FUNDAMENTALLY ERRONEOUS BASIS AS THE RATIO DECIDENDI OF THE ORDER IN GODREJ AND BOYCE MANUFACT URING CO. LTD. (SUPRA) HAD NOTHING TO DO WITH THE REST OF PRE SUMPTION CANVASSED BY THE PETITIONER BEFORE THE TRIBUNAL ON THE BASIS OF THE RATIO OF THE DECISION OF THIS COURT IN HDFC BAN K LTD. (SUPRA). 16. AT THE HEARING MR. SURESH KUMAR, LEARNED COUNSE L FOR THE REVENUE URGED THAT ON THE FACTS OF THIS CASE NO FAU LT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL. IT IS SUBMITT ED THAT, THE PETITIONER WAS NOT ABLE TO ESTABLISH BEFORE THE ASS ESSING OFFICER AND THE CIT(A) THAT THE AMOUNTS INVESTED IN THE INT EREST FREE SECURITIES CAME OUT OF INTEREST FREE FUNDS AVAILABL E WITH THE PETITIONER. IN THAT VIEW OF THE MATTER, IT IS SUBMI TTED BY HIM THAT THE ORDER OF THIS COURT IN HDFC BANK LTD.(SUPRA) WO ULD NOT APPLY TO THE FACTS OF THE PRESENT CASE. WE ARE UNAB LE TO UNDERSTAND THE ABOVE SUBMISSION. THE ASSESSING OFFI CER PASSED 7 THE ASSESSMENT ORDER ON 22ND DECEMBER, 2010 UNDER S ECTION 143(3) OF THE ACT. THE CIT(A) PASSED AN ORDER ON 21 ST NOVEMBER, 2011 DISMISSING THE PETITIONERS APPEAL. ON BOTH TH E DATES, WHEN THE ORDERS WERE PASSED BY THE ASSESSING OFFICE R AND CIT(A), THE AUTHORITIES DID NOT HAVE THE BENEFIT OF THE ORDER OF THIS COURT IN HDFC BANK LTD. (SUPRA) RENDERED ON 23RD JU LY, 2014. ONCE THE ISSUE IS SETTLED BY THE DECISION OF THIS C OURT IN HDFC BANK LTD. (SUPRA), THERE IS NOW NO NEED FOR THE ASS ESSEE TO ESTABLISH WITH EVIDENCE THAT THE AMOUNTS WHICH HAS BEEN INVESTED IN THE TAX FREE SECURITIES HAVE COME OUT O F INTEREST FREE FUNDS AVAILABLE WITH IT. THIS IS BECAUSE ONCE THE A SSESSEE IS POSSESSED OF INTEREST FREE FUNDS SUFFICIENT TO MAKE THE INVESTMENT IN TAX FREE SECURITIES, IT IS PRESUMED T HAT IT HAS BEEN PAID FOR OUT OF THE INTEREST FREE FUNDS. CONSEQUENT LY, WE DO NOT FIND ANY MERIT IN THE ABOVE SUBMISSION MADE AT THE HEARING ON BEHALF OF THE REVENUE. 9. BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY B INDING DECISION IN ITS SUPPORT. IN VIEW OF ALL THESE FACTS, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) IS CA LLED FOR. AS FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) IS CONCERNED, IT IS SEEN THAT THE DISALLOWANCE OF RS.3 8,12,500/- HAS BEEN WORKED OUT U/S 14A R.W.R. 8D(2)(III) BY AO. WE FIN D THAT AO WHILE PROCEEDING WITH DISALLOWING THE EXPENSES HAS NOT RE CORDED ANY SATISFACTION AS REQUIRED U/S 14A(2) OF THE ACT. AS PER SEC.14A(2), FOR INVOCATION OF RULE 8D, THE AO HAS TO RECORD SATISFA CTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF TOTAL INCOME. IN THE PRESENT CASE, WE FIND THAT NO SATIS FACTION HAS BEEN RECORDED BY THE AO WHILE DISALLOWING THE EXPENSE U/ S 14A OF THE ACT. ON THE ISSUE OF NECESSITY OF RECORDING OF SATISFACT ION WHILE DISALLOWING EXPENSES U/S 14A WE HAVE COME ACROSS A RECENT DECIS ION RENDERED BY HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F PUNJAB TRACTORS LTD., VS. CIT REPORTED IN (2017) 393 ITR 223 (P&H) WHEREIN HONBLE HIGH COURT HAS HELD THAT AO MUST RECORD SATISFACTIO N THAT CLAIM REGARDING EXPENDITURE IS NOT SATISFACTORY. THE REL EVANT OBSERVATIONS BY HONBLE HIGH COURT ARE REPRODUCED HEREUNDER : 11.SECTION 14A SPECIFIES THE CIRCUMSTANCES IN WHIC H THE ASSESSING OFFICER IS ENTITLED TO DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I N ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD P RESCRIBED IS IN RULE 8D OF THE INCOME-TAX RULES, 1962 WHICH W AS INTRODUCED WITH EFFECT FROM THE ASSESSMENT YEAR 200 8-09. THE CONDITIONS SPECIFIED IN SUB-SECTIONS (2) AND (3) OF SECTION 14A MUST EXIST IN ORDER TO ENTITLE THE ASSESSING OFFICE R TO INVOKE RULE 8D. THIS IS CLEAR FROM THE LANGUAGE OF THESE SUB-SE CTIONS. SUB- SECTION (2) PROVIDES THAT THE ASSESSING OFFICER SHA LL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RESPECT OF EX EMPT INCOME IN ACCORDANCE WITH THE METHOD PRESCRIBED, I.E., RUL E 8D 'IF' HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, HE I S NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM IN RESP ECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. THE WORD 'IF' INDICATES THAT TO INVOKE THE METHOD PRESCRIBED NAMELY RULE 8D , THE ASSESSING OFFICER MUST NOT BE SATISFIED WITH THE CO RRECTNESS OF THE ASSESSEE'S SAID CLAIM. 8 12. SUB-SECTION (3) PROVIDES THAT THE PROVISIONS OF SUB-SECTION (2) SHALL APPLY IN RELATION TO A CASE WHERE THE ASSESSE E CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO EXEMPT INCOME. THE OPENING WORDS OF SUB-SECTION (3) MAKE T HE PROVISIONS OF SUB-SECTION (2) APPLICABLE IN RELATIO N .TO CASES UNDER SUB-SECTION (3). THUS WHERE AN ASSESSEE CLAIM S THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION T O EXEMPT INCOME, THE ASSESSING OFFICER CAN RESORT TO RULE 8D ONLY IF HAVING REGARD TO THE ACCOUNTS OF THE ASSESSE IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EX PENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO THE INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THUS UNDER SUB-SECTION (2) AND (3) OF SECTION 14A, AN ASSESSING OFFICER CAN RESORT TO RULE 8D ONLY IF HE IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM IN RESPECT OF T HE EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT OR IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO SUCH INCOME. THE HONBLE HIGH COURT FURTHER OBSERVED AS UNDER 18. THE NEXT QUESTION IS AS TO WHETHER IT IS NECESS ARY FOR THE ASSESSING OFFICER TO RECORD HIS REASONS FOR NOT BEI NG SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM. 19. IT IS MANDATORY FOR THE ASSESSING OFFICER TO RE CORD THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE ACT OR THAT HE IS NOT SATISFIED WITH THE ASSESSEE'S CLAIM THAT NO EXPENDITURE HAD BEEN I NCURRED BY HIM IN RELATION TO THE INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME UNDER THE ACT. 20. THE MATTER STANDS CONCLUDED BY A JUDGMENT OF TH IS COURT DATED JANUARY 27, 2015 IN CIT VS. ABHISHEK INDUSTR IES LTD. I T A. NO. 320 OF 2013- REPORTED IN [2016] 380 I1R 652 (P&H), WHERE THE DIVISION BENCH HELD (PAGE 657) :- 'SECTION 14A OF THE ACT REQUIRES THE ASSESSING OFFI CER TO RECORD SATISFACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX- FREE INCOME. THE SATISFACTION TO BE RECORDED M UST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE ... ' 21. THE JUDGMENT IN MAXOPP INVESTMENT LTD. (SUPRA) ALSO SUPPORTS THIS VIEW NAMELY THAT THE ASSESSING OFFICE R MUST RECORD REASONS FOR NOT BEING SATISFIED WITH THE CO RRECTNESS OF THE ASSESSEE' CONTENTIONS WITH REGARD TO THE ASPECTS ME NTIONED IN SUB-SECTIONS (2) AND (3) OF SECTION 14A. IT IS TRUE THAT THE DELHI HIGH COURT MERELY STATES THAT SUCH REJECTION MUST B E FOR DIS- CLOSED COGENT REASONS. THE DISCLOSURE, HOWEVER, C AN ONLY BE IN WRITING. IT CAN HARDLY BE SUGGESTED THAT THE DISCLO SURE REMAINS IN THE ASSESSING OFFICER'S MIND. THE ASSESSEE IS EN TITLED TO TEST THE BASIS OF THE REJECTION OF HIS CONTENTIONS. THIS CAN BE DONE 9 ONLY IF THE ASSESSING OFFICER RECORDS HIS REASONS F OR HIS NOT BEING SATISFIED IN WRITING. WE FURTHER FIND THAT THE CO-ORDINATE BENCH OF THE T RIBUNAL, PUNE IN ITA NO.2114/PN/2012 DT.27.05.2014 IN THE CASE OF ACIT V S. MAGARPATTA TOWNSHIP DEVELOPMENT AND CONSTRUCTION COMPANY LIMIT ED HAS ALSO HELD THAT WHEN AO DID NOT RECORD ANY SATISFACTION A S REQUIRED BY SEC.14A(II), DISALLOWANCE U/S 14A R.W.R. 8D WAS UNJ USTIFIED. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS AND RELYING ON THE AFORESAID DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT, WE ARE OF THE VIEW THAT IN THE PRESENT CASE IN THE ABSENCE OF RECORDING OF SATISFACTION BY AO FOR DISALLOWING THE EXPENSES, NO DISALLOWANCE U/S 14A OVER AND ABOVE THAT HAS BEEN SUO-MOTO DISALLOWE D BY ASSESSEE IS CALLED FOR. WE THEREFORE SET ASIDE THE ADDITIONAL D ISALLOWANCE U/S 14A OF THE ACT MADE BY AO. THUS, THE GROUNDS OF THE ASSESSEE IS ALLOWED. 8. BEFORE US, NO CONTRARY BINDING DECISION HAS BEEN PLACED BY REVENUE TO SUPPORT ITS CONTENTION NOR HAS POINTED OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE CASE FOR THE YEA R UNDER CONSIDERATION AND THAT OF A.Y. 2011-12. WE THEREFORE RELY ING ON THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE, HOLD THAT NO D ISALLOWANCE OF EXPENSES OVER AND ABOVE THE SUO MOTU DISALLOWANCE OF RS.5 LACS AS MADE BY ASSESSEE IS CALLED FOR. WE THEREFORE SET ASIDE T HE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 23 RD DAY OF FEBRUARY, 2018. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 23 RD FEBRUARY, 2018. YAMINI 10 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-7, PUNE. PR. CIT-6, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $+,-/ GUARD FILE. / BY ORDER // // TRUE COPY // ./0%1&2 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.