TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1458
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....usiness losses of the earlier assessment years. 3. We shall take first issue raised by the assessee, which relates to disallowance of Rs. 33,54,498/- under section 14A read with rule 8D of the I.T. Rules, 1962. 4.The facts of the case which can be stated quite shortly are as follows: On perusal of the balance sheet, the Assessing Officer observed that the assessee had made substantial investments in shares, which gave rise to exempt dividend income. In the computation of income, the assessee had disallowed, suo-moto, a sum of Rs. 2,64,000/- under section 14A of the Act, being salary paid to one of its employee, who was solely responsible to look into the investment affairs of the assessee. However, the Assessing Officer noted that in addition to the salary offered for disallowance, there were other administrative expenses incurred by the assessee. It cannot be ruled out that the assessee must have made the expenditure towards making and managing such investments. Therefore such expenditure incurred should be disallowed under section 14A of the Act and accordingly disallowance was made by AO under section 14A read with rule 8D(2)(ii) & (iii) of the Income Tax Rules, as follows:- ....
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....of the dividend earned though assessee himself disallowed Rs. 2,64,000/- by mistake or misconception." The ld AR for the theassessee, explained the Bench that assessee had disallowed under section 14A read with rule 8D,suo-motu to the tune of Rs. 2,64,000/-, which is more than the total exempted income of Rs. 40,068/-.The ld AR pointed out that assessing officer disallowed Rs. 33,54,498/- under Rule 8D (2) (iii) of I.T. Rules, which is not acceptable and it should be restricted up to the total exempted income of Rs. 40,068/- and for the he relied on the decision of the Coordinate Bench of this Tribunal in the case of Tata Industries Ltd. Vs. ITO[2016]181 TTJ 600 (Mum.), wherein it was held as follows:- "Even otherwise, the entire interest expenditure can not be attributed to earning of exempt dividend income only. Even an investor normally does not invest merely for earning of dividends. It also takes into consideration the possibility of rise in price of shares which may result into taxable capital gains also. The Hon'ble Delhi High Court in the case of Joint Investment Private Limited (supra) has held that section 14A of the Act or rule 8D cannot be interpreted so as to m....
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....year. (Para 31)" The Ld. Authorized Representative for the assessee submitted that above cited judgment of the coordinate Bench in the case of Tata Industries Ltd (supra), is squarely applicable to the assessee under consideration and therefore, prayed the Bench that disallowance U/s 14A should be restricted to Rs. 40,068/-, to the extent of the dividend earned, though the assessee himself disallowed Rs. 2,64,000/- by mistake. 8.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 9.We have heard learned counsels on both sides and perused the material available on record, we note that the requirement for attracting Sec.14A(1) of the Act, is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income.Earlier to the introduction of sub-sections (2) and (3) of Section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment.Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules me....
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.... need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section (2) to Section 14A of the Act and sub Rule (1) to Rule 8D of the Rules." 9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is ind....
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....ssee and therefore, the income is shown in the AIR/26AS transactions. However, the assessing officer noted that the assessee failed to submit the reconciliation and rectified TDS returns to explain that these incomes do not belong to him therefore, a sum of Rs. 26,33,944/- was added to the total income of the assessee. 12. Aggrieved by the stand, so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), but without success. During the course of appellate proceedings, the assessee has submitted some additional evidences before the ld. CIT(A) stating that the three parties namely; Choron Diamonds (India) Pvt. Ltd., Dawn Infrastructure Ltd. and Magnum Silk Mills Pvt. Ltd., who had wrongly reported transactions aggregating to Rs. 26,33,944/- under PAN of the assessee company instead of reporting it under the correct PAN of the parties, to whom such transactions actually pertain to. However, the ld CIT(A) noted that the assessee has not made any prayer for admission of additional evidence under Rule 46A of the I.T. Rules, 1962 and the assessee has not explained as to how the conditions laid down in Rule 46A are satisfied by him, so as to admit ....
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....e TDS transactions and submitted before the ld CIT(A). The assessee also explained the reasons that why he had not submitted these confirmations/ rectification statements at the initial stage, during the assessment proceedings. Inspite of this, the ld CIT(A) has not admitted these additional evidences. The assessee has produced the reconciliation before the ld. CIT(A) by providing party-wise details and confirmations of transactions and the TDS deducted wrongly in respect of some transactions, but the ld.CIT(A) has not admitted these additional evidences nor sent themto the Assessing Officer for his examination. The ld. CIT(A) ought to take remand report on these additional evidences and adjudicate the issue in accordance with law, but ld. CIT(A) neither examined himself nor he sent them to the Assessing Officer for his examination. We note that the ld. CIT(A) has not followed the procedure prescribed in Rule 46A of the Income Tax Rules, therefore, we are of the view that this issue requires to be set-aside to the file of the assessing officer.Accordingly, we set aside the order of ld CIT(A) and restore the issue to the file of the assessing officer, with a direction, to examine t....