Assistant Commissioner of Income-tax, Pune V. M/s. Alfa Laval India Ltd., Pune

ITA 937/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0064 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 13-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Revenue expenditure; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO. 937/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-8, PUNE. ....... / APPELLANT / V/S. M/S. ALFA LAVAL INDIA LTD. SURVEY NO.2221A, MUMBAI PUNE ROAD, DAPODI, PUNE-411 012 PAN : AAACA5899A / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI SANJEEV GHEI / DATE OF HEARING : 01.04.2019 / DATE OF PRONOUNCEMENT : 01.04.2019 ! / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY THE REVENUE EMANATES FROM TH E ORDER OF THE LD. CIT(APPEALS)-13, PUNE DATED 13.01.2017 FOR THE ASSESSM ENT YEAR 2012-13 AS PER FOLLOWING GROUNDS OF APPEAL ON RECORD: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN HOLDING THAT THE DOMESTIC MARKET SEGMENT A ND THE EXPORT MARKET SEGMENT WERE DISTINCT AND NOT COMPARABLE AND THEREB Y, THE APPLICATION OF THE COST PLUS METHOD BY THE TPO WAS INCORRECT? 2 ITA NO. 937/PUN/2017 A.Y.2012-13 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF IT SERVICES C HARGES OF RS.1,98,73,540/- BY HOLDING THAT THE ABOVE EXPENDIT URE WAS IN THE NATURE OF REVENUE EXPENDITURE? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF RS.37,64,519/- U/ S.14(A) IGNORING THAT THE AO HAS CLEARLY RECORDED IN HIS ORDER THAT HE IS NOT SATISFIED WITH THE QUANTUM OF EXPENSES ALLOCATED BY THE ASSESSEE AGAIN ST EXEMPT INCOME? 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 2. THE LD. AR OF THE ASSESSEE APPRAISED THE BENCH TH AT THE GROUND NO.1 IN THE GROUNDS OF APPEAL BY THE REVENUE IS COVERED BY THE DECISION OF CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2638/PUN/2016 FOR THE ASSESSMENT YEAR 2011-12. THE ISSUE HAS BEEN DISCUSSED AT PARA 4 OF THE TRIBUNALS ORDER WHICH IS AS UNDER: 4.THE ASSESSEE AGGREGATED ALL ITS INTERNATIONAL TR ANSACTION OF THE EQUIPMENT DIVISION IN ITS TRANSFER PRICING STUDY RE PORT. ACCORDING TO THE ASSESSEE, ITS INTERNATIONAL TRANSACTIONS ARE REQUIR ED TO BE AGGREGATED BECAUSE THE SAME ARE CLOSELY INTERLINKED, THEREFORE , IT USED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. THE ASSESSEE STATED THAT THE NET OPER ATING MARGIN OVER SALES OF ITS EQUIPMENT DIVISION WAS OF 13.77% WHICH WAS HIGHER THAN THE AVERAGE NET OPERATING MARGIN OF THE COMPARABLE COMP ANIES. THEREFORE, ITS INTERNATIONAL TRANSACTIONS OF THE EQUIPMENT DIV ISION WERE AT THE ARMS LENGTH PRICE (ALP). THE TRANSFER PRICING OFFICER (T PO) IN THE ORDER PASSED U/S.92CA(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) REJECTED THE TNMM USED BY THE ASSESSEE. THE TPO APPLIED THE COST PLUS METHOD (CPM) WITH THE PROFIT LEVEL INDICATOR ( PLI) WITH RESPECT TO ITS DOMESTIC SEGMENT OF THE TRADED SPARES @ 136.15% WHE REIN THE PLI IN THE CASE OF THE EXPORT OF THE TRADED SPARES TO AE IS @4 6.02%. WITH THE RESULT, THE TPO MADE THE ADJUSTMENT OF RS.1,56,00,000/- TO THE ASSESSEES INTERNATIONAL TRANSACTION OF EXPORT OF SPARES. THE CO-ORDINATE BENCH OF THE PUNE TRIBUNAL ON THE ISSUE HAS HELD AND OBSERVED AS FOLLOWS: 7. WITH REGARD TO THE FIRST GROUND, AT THE TIME OF HEARING, THE LD. AR OF THE ASSESSEE INVITED OUR ATTENTION TO THE PARA 2.1. 1 TO 2.1.4 AT PAGES 10 TO 18 OF THE LD. CIT(A)S ORDER WHEREIN ON THE ISSU E AS PER THE REASONS APPEARING THEREIN, LD. CIT(A) HAS PROVIDED RELIEF T O THE ASSESSEE WHICH IS ON RECORD. THE LD. AR SUBMITTED THAT TPO HAS MADE A N ADDITION WHILE DETERMINING ALP OF THE INTERNATIONAL TRANSACTIONS R ELATING TO THE EQUIPMENT DIVISION. THE ASSESSEE HAS ADOPTED TNMM A S THE MOST APPROPRIATE METHOD FOR DETERMINING ALP. THE TPO HEL D THAT THE COST PLUS 3 ITA NO. 937/PUN/2017 A.Y.2012-13 METHOD IS THE MORE SUITABLE THAN TNMM. HOWEVER, THE LD. CIT(A) HAS HELD THAT TNMM IS TO BE APPLIED FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH, ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2008-09 TO 2010-11. THE ITAT HAS HELD THAT TNMM IS THE MOST AP PROPRIATE METHOD AND ACCORDINGLY, THE ADDITION MADE HAS BEEN DELETED . 8. THE LD. DR THOUGH PRINCIPALLY AGREED TO THE SUBM ISSIONS OF THE LD. AR , HOWEVER, HE HAS PLACED STRONG RELIANCE ON THE FIN DINGS OF TPO AS WELL AS THE ASSESSING OFFICER. 9. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RI VAL CONTENTIONS IN THE PAPER BOOK FILED BEFORE US. THE COPIES OF ORDER OF ITAT RELATES TO ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 HAV E BEEN FILED IN PAGES 71 TO 81 OF THE PAPER BOOK. THE RELEVANT PORT ION OF THE ORDER ON THIS ISSUE IS AS UNDER: 13. NOW, COMING TO THE FACTS OF THE PRESENT CASE, THE TRANSFER PRICING OFFICER (TPO) IN PARA 12 OF ITS ORDER HAD R EFERRED THE SAME LIST WHICH IS SIMILAR TO AS REPRODUCED IN PARA 10 AT PAGE 8 OF THE TRIBUNALS ORDER DATED 30.06.2017 (SUPRA.). THE TPO IS DIRECTED TO APPLY THE TNMM METHOD AS IN EARLIER YEARS TO EXCLUD E FIVE CONCERNS I.E. AXTEL INDUSTRIES LTD., ANUP ENGINEERI NG LTD, THERMAX LTD., WALCHANDNAGAR INDUSTRIES LTD. AND GMM PFAUDLE R LTD. IT MAY BE POINTED OUT HEREIN ITSELF THAT THE TPO IN PA RA 9 HAS ALSO REFERRED TO THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2008-09. THE CIT(A) HAS ALSO GRANTED THE RELIEF TO THE ASSES SEE IN PARA 2.1.15 AT PAGE 24 IN TURN, RELYING ON THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008-09. WE FIND THAT THE TRIBUNAL FURTHER IN ASSESSMENT YEAR 2009-10 HAS APPLIED SIMILAR PRINCIP LE AND HELD AS UNDER: ' 12 . SIMILAR ISSUE OF SELECTION OF MOST APPROPRIATE METH OD AROSE BEFORE THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ASSES SMENT YEAR 2008-09 AND THE TRIBUNAL HELD THAT CPM METHOD SHOUL D NOT BE APPLIED AND TNMM METHOD IS TO BE APPLIED AS MOST AP PROPRIATE METHOD. APPLYING THE SAID RATIO TO THE FACTS OF THE PRESENT CASE, WHERE THE TPO HIMSELF HAD APPLIED TNMM METHOD IN AL L THE EARLIER YEARS STARLING FROM ASSESSMENT YEARS 2002-03 TO 200 7-08 AND THE TRIBUNAL HAD DIRECTED THE APPLICATION OF TNMM M ETHOD IN ASSESSMENT YEAR 2008-09, WE HOLD THAT FOR BENCHMARK ING THE INTERACTIONAL TRANSACTIONS IN THE EQUIPMENT DIVISIO N, TNMM METHOD IS TO BE APPLIED . THE TPO HAS ALREADY CONSIDERED THE LIST OF COMPARABLES SELECTED BY THE ASSESSEE. IN RESPECT OF COMPARABLES AT SERIAL NOS . 1 AND 7 BEING REJECTED FOR NON-MATCHING ON TURNOVER, WE UPHOLD THE ORDER OF TPO . SIMILARLY, WALCHANDNAGAR INDUSTRIES LTD. CANNOT BE SELECTED AS COMPARABLE FOR DIFFERENT ACCOUNTING PERIOD. IN RESPECT OF THER MAX LTD . AND GMM PFAUDLER LTD ., ' THE TWO CONCERNS ARE NOT FUNCTIONALLY COMPARABLE . NOW, LOOKING AT THE MARGINS OF BALANCE FOUR CONCERN S WHICH WERE SELECTED BY THE ASSESSEE AND AS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE MARGINS OF SAID CONCERNS ARE MUCH BELOW THE MARGINS SHOWN BY THE ASSESSEE AT 19.48% AND CONSEQUENTLY, NO ADJUSTM ENT IS TO BE MADE IN THE HANDS OF ASSESSEE ON THIS ACCOUNT. WE A LSO ACCEPT THE AGGREGATION APPROACH APPLIED BY THE ASSESSEE UN DER THE SAID EQUIPMENT DIVISION AS SIMILAR AGGREGATION APPROACH HAS BEEN APPLIED BY THE TPO IN ALL THE EARLIER YEARS AND EVE N BY THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 CONSEQUENTLY, WE DELETE THE ADDITION OF RS.8,87,590/- MADE IN THE DIVISION OF E XPORT OF EQUIPMENTS.' 4 ITA NO. 937/PUN/2017 A.Y.2012-13 14. IN VIEW OF SIMILARITY OF THE ISSUE, WE APPLY TH E PARITY OF REASONING AS IN ASSESSMENT YEAR 2009-10 TO DECIDE T HE ISSUE IN FAVOUR OF THE ASSESSEE . THE TPO IS THUS, DIRECTED TO EXCLUDE FIVE CONCERNS I.E. AXTEL INDUSTRIES LTD ., ANUP ENGINEERING LTD . , THERMAX LTD . , WALCHANDNAGAR INDUSTRIES LTD. AND GMM PFAUDLER LTD . AND AFTER EXCLUDING THE SAID COMPARABLES, THE AVERAGE MARGIN OF BALANCE COMPARABLES WORK TO 14 . 01% AGAINST WHICH , THE ASSESSEE HAS SHOWN THE MARGINS OF 25 . 27% . HENCE, NO ADJUSTMENT IS TO BE MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS . THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS, THUS, DISMISSED. RESPECTFULLY, FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH, WE UPHELD THE RELIEF PROVIDED BY THE LD. CIT(A) ON THI S ISSUE. HENCE, GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS DISMISSED. 3. THE LD. DR THOUGH PRINCIPALLY AGREED TO THE SUBMISSIONS OF THE L D. AR , HOWEVER, HE HAS PLACED STRONG RELIANCE ON THE FINDINGS OF T HE TPO AS WELL AS THE ASSESSING OFFICER. 4. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE R IVAL CONTENTIONS. WE HAVE ALSO PERUSED OUR FINDINGS IN ITA NO.2638/PUN/2016 (SU PRA.) IN ASSESSEES OWN CASE AND WE FIND THAT THE ISSUE HAS BEE N DEALT AND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING OUR ABOVE MENTIONED DECISION, WE SUS TAIN THE RELIEF PROVIDED TO THE ASSESSEE BY THE LD. CIT(APPEALS). THU S, GROUND NO.1 RAISED IN THE APPEAL BY THE REVENUE IS DISMISSED . 5. WITH REGARD TO GROUND NO.2 IN THE GROUNDS OF APPEAL, T HE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE HAS BEEN RESTORED B ACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION IN ASSESSEES OWN CASE IN T HE AFORESAID DECISION IN ITA NO.2638/PUN/2016 FOR THE ASSESSMENT YEAR 2011-1 2. 5 ITA NO. 937/PUN/2017 A.Y.2012-13 6. WE HAVE PERUSED THE CASE RECORDS AND ANALYZED TH E FACTS AND CIRCUMSTANCES IN THIS CASE. THIS ISSUE RELATES TO THE DELET ION OF DISALLOWANCE OF IT SERVICE CHARGES. THAT IN OUR DECISION IN ASSESSEES OWN CASE IN ITA NO.2638/PUN/2016 FOR THE ASSESSMENT YEAR 2011-12, WE H AVE OBSERVED AND HELD AS FOLLOWS: 17. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 AND 2010-11, THIS ISSUE HAS BEEN REMITTED BACK TO THE F ILE OF ASSESSING OFFICER FOR VERIFICATION. RELEVANT PART OF THE ORDE R IN ITA NO.1351/PUN/2015 FOR ASSESSMENT YEAR 2010-2011 WHER EIN THE ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2008-09 HAS CONSIDE RED IS AS UNDER: 16. IN THE FACTS RELATING TO THE ISSUE, THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED EXPENDITURE INCURRED TOWA RDS ACQUISITION AND USE OF SOFTWARE AT RS.5.38 CRORES. THE ASSESSING OF FICER ON EXAMINATION OF THE DETAILS OF EXPENDITURE HAD FOUND THE SAID EX PENDITURE TO BE CAPITAL IN NATURE AND ALLOWED DEPRECIATION AT RS.1.61 CRORE S ON IT. THE ASSESSING OFFICER DISALLOWED NET EXPENDITURE OF RS.3.76 CRORE S. 17. THE CIT(A) HAD DELETED THE ENTIRE DISALLOWANCE WITH DIRECTION TO REVERSE THE DEPRECIATION ALLOWED ON THE SAID DISALL OWANCE. 18. THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) AS SIMILAR ISSUE OF SOFTWARE EXPENSES HAD BEEN RESTORED BACK TO THE FIL E OF ASSESSING OFFICER FOR FRESH VERIFICATION BY THE TRIBUNAL. 19. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 20 08-09 HAD SET ASIDE THE SAID ISSUE FOR VERIFICATION AS PER PARA 10 AT P AGE 53 OF THE SAID ORDER. WE ARE RELYING ON THE FINDING OF TRIBUNAL IN THIS R EGARD. HOWEVER, FOR THE SAKE OF BREVITY, THE SAME IS NOT BEING REPRODUCED. IN LINE WITH THE SAID DIRECTIONS, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION, AS PER DIRECTIONS OF TRIBUNAL IN ASSE SSMENT YEAR 2008-09. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVE NUE ARE ALLOWED FOR STATISTICAL PURPOSES. THAT, RESPECTFULLY FOLLOWING THE DECISION OF OUR CO -ORDINATE BENCH, ITAT IN ASSESSEES OWN CASE, THESE TWO GROUNDS ARE REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION. ACCORDI NGLY, GROUNDS NO. 3 AND 4 RAISED IN APPEAL BY THE REVENUE ARE ALLOWED FOR S TATISTICAL PURPOSE. 7. THE LD. DR FAIRLY CONCEDED IN REMITTING BACK THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION. 8. WE HAVE PERUSED THE CASE RECORDS AND ANALYZED TH E FACTS AND CIRCUMSTANCES IN THIS CASE. IN VIEW OF THE MATTER, RESPEC TFULLY FOLLOWING OUR 6 ITA NO. 937/PUN/2017 A.Y.2012-13 DECISION IN ASSESSEES OWN CASE IN ITA NO.2638/PUN/2016 (SUPRA.), WE SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) AND REMIT THE MATT ER BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION. THE ASSESSING OFFICER SHALL GRA NT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCORDANCE WIT H LAW. THUS, GROUND NO.2 RAISED IN APPEAL BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . 9. GROUND NO.3 RELATES TO THE DELETION OF DISALLOWANCE U/S .14A OF THE ACT. THE LD. AR OF THE ASSESSEE APPRAISED THE BENCH THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINATE BEN CH OF THE TRIBUNAL IN ITA NO.2638/PUN/2016(SUPRA.). THE RELEVANT FINDINGS ON THE IS SUE ARE AS FOLLOWS: 20. WE HAVE PERUSED THE CASE RECORD. WE FIND THAT THE LD. CIT(APPEAL) DELETED THIS DISALLOWANCE IN ASSESSEES CASE FOR AS SESSMENT YEAR 2010- 11 BECAUSE THE ASSESSING OFFICER FAILED TO RECORD H IS SATISFACTION BEFORE INVOKING RULE 8D, WHICH IS HELD AS A MANDATORY PREC ONDITION PROVIDED U/S.14(2) OF THE ACT AND THE SAME FACTS PREVAIL DUR ING THE YEAR UNDER CONSIDERATION. THEREFORE, LD. CIT(APPEAL) HAD DELET ED THE DISALLOWANCE AS HE HAS DONE FOR ASSESSMENT YEAR 2010-11, MAINTA INING STATUS QUO. 21. AT THE TIME OF HEARING, THE LD. AR OF THE ASSES SEE APPRAISED THE BENCH THAT THE PUNE BENCH OF THE TRIBUNAL IN ITA NO .1351/PUN/2015 ON THE SAME ISSUE, FACTS AND CIRCUMSTANCES HAS ALSO DE LETED THE DISALLOWANCE MADE AND HAS GIVEN FINDINGS IN FAVOUR OF THE ASSESSEE. THE RELEVANT PARTS OF THE FINDINGS ARE AS UNDER: 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS THE PRELIMINARY ISSUE OF RECORDING OF SATISFACTION BY THE ASSESSING OFFICER BEFORE APPLYING PROVISIONS OF RULE 8D OF THE RULES IN LINE WITH SECTION 14A OF THE ACT. WE FIND THAT SIMILAR ISSUE OF EXERCI SE OF JURISDICTION BY THE ASSESSING OFFICER IN RECORDING THE SATISFACT ION WHILE APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT A ROSE BEFORE THE TRIBUNAL IN KALYANI STEELS LTD. VS. ADDL.CIT (SUPRA ), WHEREIN IT WAS HELD AS UNDER:- 10. IN THE AFORESAID BACKGROUND, NOW, WE MAY EXAMIN E THE FACTS OF THE PRESENT CASE. IN THIS CASE, ASSESS EE HAS EARNED BY WAY OF DIVIDENDS A SUM OF RS.5,45,58,685/ -, WHICH IS EXEMPT U/S 10(38) OF THE ACT AND THUS THE SAME DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IN THE COMPUTATION OF INCOME, ASSESSEE HAVING REGARD TO SE CTION 14A OF THE ACT, DETERMINED THE AMOUNT OF EXPENDITUR E INCURRED IN RELATION TO SUCH INCOME AT RS.5,00,000/ -. THE ASSESSING OFFICER HAS NOT FOUND IT ACCEPTABLE AND H AS INSTEAD DETERMINED THE AMOUNT OF EXPENDITURE IN REL ATION TO SUCH INCOME BY APPLYING RULE 8D OF THE RULES. OSTEN SIBLY, THE ACTION OF THE ASSESSING OFFICER CANNOT BE UPHEL D UNLESS 7 ITA NO. 937/PUN/2017 A.Y.2012-13 HE HAS COMPLIED WITH THE PRE-REQUISITE OF INVOKING RULE 8D OF THE RULES, NAMELY, RECORDING OF AN OBJECTIVE SAT ISFACTION WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT AN EXPENDITURE OF RS.5,00,000/- HAS BEEN INCURRED IN R ELATION TO THE EXEMPT INCOME, IS INCORRECT. IN ORDER TO EXA MINE THE AFORESAID COMPLIANCE WITH THE PRE-CONDITION, WE HAV E PERUSED THE PARA 4 TO 4.2 OF THE ASSESSMENT ORDER A ND FIND THAT NO REASONS HAVE BEEN ADVANCED AS TO WHY THE DISALLOWANCE DETERMINED BY THE ASSESSEE WAS FOUND T O BE INCORRECT, HAVING REGARD TO THE ACCOUNTS OF THE ASS ESSEE. THE ONLY POINT MADE BY THE ASSESSING OFFICER IS TO THE EFFECT THAT THE SAID DISALLOWANCE WAS NOT ACCEPTAB LE. IN- FACT, WE FIND THAT THE ASSESSEE MADE DETAILED SUBMI SSIONS TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCE D BY THE CIT(A) IN PARA 3.2.1 OF HIS ORDER. AS PER THE A SSESSEE, THE DETERMINATION OF DISALLOWANCE U/S 14A OF THE AC T OF RS.5,00,000/- WAS BASED ON THE EMPLOYEE COSTS AND O THER COSTS INVOLVED IN CARRYING OUT THIS ACTIVITY. FURTH ER, ASSESSEE ALSO EXPLAINED THAT THE SHARES WHICH HAVE YIELDED EXEMPT INCOME WERE ACQUIRED LONG BACK OUT O F OWN FUNDS AND NO BORROWINGS WERE UTILIZED. THE MUTUAL F UND INVESTMENTS WERE CLAIMED TO BE ALSO MADE OUT OF SUR PLUS FUNDS. IT WAS SPECIFICALLY CLAIMED THAT NO FRESH IN VESTMENTS HAVE BEEN MADE DURING THE YEAR UNDER CONSIDERATION IN SHARES YIELDING EXEMPT INCOME. ALL THE AFORESAID PO INTS RAISED BY THE ASSESSEE HAVE NOT BEEN ADDRESSED BY T HE ASSESSING OFFICER AND THE SAME HAVE BEEN BRUSHED AS IDE BY MAKING A BLAND STATEMENT THAT THE DISALLOWANCE I S NOT ACCEPTABLE. THEREFORE, IN OUR VIEW, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT RECORDED ANY OBJECTIVE SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE, WHICH IS MANDATORILY REQUIRED IN TERMS OF SECTION 14A(2) OF THE ACT AND THEREFORE HIS ACTION OF INVOK ING RULE 8D OF THE RULES TO COMPUTE THE IMPUGNED DISALLOWANC E IS UNTENABLE. ACCORDINGLY, THE ORDERS OF THE AUTHORITI ES BELOW ARE SET-ASIDE ON THIS ASPECT AND THE ASSESSING OFFI CER IS DIRECTED TO RETAIN THE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF RS.5,00,000/-, AS RETURNED BY THE ASS ESSEE. 26. IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER HAS FAILED TO RECORD ANY SATISFACTION BEFORE MAKING THE AFORESAID DISALLOWANCE AND IN THE ABSENCE OF RECORDING OF SAT ISFACTION, THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVO KED AS THE ASSESSING OFFICER HAS FAILED TO COME TO A FINDING A S TO WHY THE DISALLOWANCE MADE BY THE ASSESSEE UNDER SECTION 14A OF THE ACT AT RS.3 LAKHS IS INCORRECT. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A). THE GROUND OF APPEAL NO.4 RAISED BY THE REV ENUE IS THUS, DISMISSED. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE CO-ORDINATE BENCH, WE UPHOLD THE ORDER OF LD. CIT(APPEAL) ON TH IS ISSUE AND SUSTAIN THE RELIEF PROVIDE TO THE ASSESSEE. THUS, GROUND NO. 5 RAISED IN APPEAL BY REVENUE IS DISMISSED . 10. WE HAVE PERUSED THE CASE RECORDS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE FINDINGS OF THE LD. CIT(APPEALS) AND HAV E ALSO PERUSED 8 ITA NO. 937/PUN/2017 A.Y.2012-13 OUR ORDER IN THE CASE OF ASSESSEE IN ITA NO.2638/PUN/ 2016 FOR THE ASSESSMENT YEAR 2011-12. WE OBSERVE THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES WITH RESPECT TO THE RELEVANT ASSESSM ENT YEAR. THE LD. DR ALSO AGREED TO THIS FACT. HENCE, RESPECTFULLY FOLLOWING OUR DE CISION FOR THE ASSESSMENT YEAR 2011-12 IN ASSESSEES OWN CASE, WE SU STAIN THE RELIEF PROVIDED TO THE ASSESSEE. THUS, GROUND NO.3 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 11. GROUND NO.4 IS GENERAL IN NATURE AND HENCE, REQUIRES NO ADJUDIC ATION. 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 1ST DAY OF APRIL, 2019. SD/- SD/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 1 ST APRIL, 2019. SB !'#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-13, PUNE. 4. THE PR. CIT-5, PUNE. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, A BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 9 ITA NO. 937/PUN/2017 A.Y.2012-13 DATE 1 DRAFT DICTATED ON 01 .0 4 .2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 01 .0 4 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER