TaxTMI 
TaxTMI 
2018 (4) TMI 1766
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....ules, 1962 ("the Rules") as also to determine the amount of expenditure incurred by the Appellant in relation to income which does not form part of total income. 2. The Appellant prays that it be held that: i. the lower author ities failed to establish burden that they are not satisfied with the claim of the Appellant; ii. their act ion to invoke sect ion 14A and to determine the amount of disallowance in relation to exempt income be treated as without jurisdiction, ab intio void and bad-inlaw; and iii. as such the order of the lower author ities to the extent of addition made under section 14A of the Act be treated as illegal, invalid, ab intio void, bad-in-law and be quashed. Ground No. II Disallowance u/s. 14A Rs. 15,29,054/- : 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in partly confirming the ac t ion of disallowing expenditure of Rs. 15,29,054/- u / s. 1 4 A r. w. r 8 D of the Rules. 2. He further erred in disallowing the expenditure of Rs. 1,52,905/- which has been already disallowed by the Appellant in its return of income and as such the same resulted into double disallowa....
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.... the assessment proceedings the A.O observed that the assessee had received dividend income of Rs. 15,29,054/-. The A.O called upon the assessee to furnish the details of the dividend income and explain as to why the disallowance of expenditure incurred on earning of the said exempt income may not be made under Sec. 14A r.w. Rule 8D of the Income tax Rules 1962. The assessee in its reply submitted that it had offered 10% of the dividend income of Rs. 1,52,905/- as disallowance under Sec. 14A. The A.O not finding favour with the submissions of the assessee, proceeded with and worked out the disallowance under Sec. 14A r.w. Rule 8D, as under:- (i) The amount of expenditure directly relating to income which does not form part of total income. (% of Dividend Income/Total Income) x Total expenditure 552 (ii) Proportionate of interest expenditure computed in accordance with the formula given in Rule 8D (2)(ii) (A X B/C) 40,72,065 x 14,07,34,820/33,12,84,758 17,29,875 (iii) Amount equal to one-half percent of the average of the value of investment, income from which does not or shall not from part of the total income as ....
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....upon us that as no disallowance under Sec. 14A r.w. Rule 8D(2)(ii) in context of the interest expenditure was made by the A.O while framing the assessment in its case for the immediately preceding year, viz. A.Y. 2011-12, therefore, no such disallowance could have been made in its case for the year under consideration. The ld. A.R further submitted that as the profits of the assessee were sufficient to explain the investments, therefore, no disallowance could have been made in respect of the interest expenditure under Sec. 14A r.w. Rule 8D(2)(ii). It was further averred by the ld. A.R that as the assessee company was only holding shares of one company, therefore, no expense was incurred for earning of the dividend income. Per contra, the ld. Departmental representative (for short 'D.R') relied on the orders of the lower authorities. 7. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that the A.O while dislodging the claim of disallowance made by the assessee under Sec. 14A had mainly deliberated on the scope and gamut of the disallowance contemplated under Sec. 14A r.w Ru....
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....e recent judgment of the Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Limited (supra), wherein the Hon'ble Apex Court had held as under:- "Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. We are of the considered view that in the case before us, the A.O had failed to satisfy the statutory requirement of arriving at a satisfaction, that having regard to the accounts of the assessee, as placed before him, it was not possible for him generate the requisite satisfaction with regard to the correctness of the claim of disallowance made by the assessee under Sec. 14A. We are also not persuaded to subsc....