TaxTMI 
TaxTMI 
2015 (11) TMI 1061
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....On the facts and circumstances of the case and in law, the learned CIT(A) erred on in confirming the disallowance of expenditure of Rs. 1,79,85,122/- under Section 14A of the Income-tax Act, 1961 ('the Act') r.w. Rule 8D of the Income-tax Rules as against Rs. 1,42,040/- worked out by the assessee in its return of income. 3. On the facts and circumstances of the case and in law, the learned CIT(A) further erred in confirming the application of Rule 8D while computing disallowance u/s 14A. 4. On the facts and circumstances of the case and in law, the learned CIT(A) further erred in not adjudicating 2nd ground of appeal filed by the appellant i.e. the learned AO has erred in adding Rs. 1,79,85,122/- instead of adding Rs.l,78,43,082/- i.e. after reducing self-disallowance made by the assessee of Rs. 1,42,040/- in the return of income. 5. On the facts and circumstances of the case and in law, the learned CIT(A) also erred in not accepting the submission and working given by the assessee that maximum disallowance under section 14A would be Rs. 7,64,949/-. 6. The appellant craves leave to add, amend, delete or modify any of the above grounds of ....
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....o. 54 -55 of the paper book. It was further submitted by him that no satisfaction has been recorded by the AO before rejecting claim of the assessee and increasing amount of disallowance to exorbitant figure, from the amount of disallowance made by the assessee in its return of income. In support of his arguments, he placed reliance upon judgment of Hon'ble Bombay Bench of ITAT in the case of Gravis Hospitality Ltd. vs. DCIT 67 SOT 0184 (Mumbai). On the other hand Ld DR has supported the orders of lower authorities. It was submitted that disallowance was made by the AO as per law, and needs to be upheld. 6. We have gone through the submissions made by both sides. It is seen that the Assessee had made voluntary disallowance in the computation sheet. During the course of assessment proceedings, the Assessee submitted a note sheet wherein, justification was given for the amount that could be disallowed u/s 14A, keeping in view nature of business of the assessee and facts and circumstances of the case. For the sake of ready reference, this working sheet is reproduced below: "Note on 14A Disallowance: As regards disallowance U/s 14A, we would like to submit that....
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....% of time Amount of Disallowance CFO 49,85,410 10% 4,98,541 Junior Assistant 7,10,200 20% 1,42,040 Total Compensation Cost 6,40,581 Add: overhead cost (19.41%) 1,24,368 Disallowance u/s 14A 7,64,949 Statement showing calculation of % of overhead cost to compensation Total Expenses as per Profit & Loss Account 516,088,370 Add: Depreciation 25,680,928 541,769,298 Less: Compensation 439,443,069 Bad debts written off 11,064,393 Donation 500,000 Provision for doubtful debts 3,313,383 Loss on Scrap/Sale of fixed asset (net) 98,224 Net Loss on foreign currency transactions 2,032,833 456,451,902 Net Overhead cost 85,317,396 % of overhead cost to compensation 19.41 6.1. The perusal of the above said details would show that the assessee has given an item wise, and detailed justification for the amount, liable to be disallowed, as per facts. On the other hand, Ld. AO in the asses....
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....diture debited is not correct and there could have been certain other expenditures which can be said to have been incurred in relation to the earning of exempt income. The disallowance u/s 14A (1) can only be triggered, once the conditions under sub section (2) are satisfied. To work out the disallowance u/r 8-D, the A.O. has to first examine the accounts of the assessee and the correctness of the claim and then, if having regard to such accounts and the claim he is not satisfied with either the correctness of the claim made by the assessee or made a claim that no expenditure at all has been incurred for the purpose of earning the exempt income, then only he can resort to Rule 8-D. In the present case, we find that the A.O. has straight-away proceeded to apply Rule 8-D for the purpose of disallowance u/s 14A without satisfying or complying with the mandatory requirement of section 14A(2) or Rule 8-D(1). Once the A.O. has failed to comply the statutory requirement, then he cannot proceed to make the disallowance u/s 14A(1) and accordingly, the disallowance made by the A.O. and partly sustained by the ld. CIT(A) over and above the disallowance made by the assessee is deleted. In the ....