TaxTMI 
TaxTMI 
2020 (2) TMI 83
X X X X Extracts X X X X
X X X X Extracts X X X X
....missioner of Income Tax(Appeals)-6 ("CIT(A)") erred in upholding the action of the AO in disallowing an amount of Rs. 4.91 crores u/s 14A of the Income Tax Act, 1961 ("the Act") r.w.r. 8D(iii) of the Income Tax Rules, 1962 ("the Rules") as expenditure incurred for earning tax free income of Rs. 9.26 crores." b. 3 The issue raised by the assessee in Ground No.1 is against the confirmation of disallowance of Rs. 4.91 crores by the CIT(A) as made by the AO u/s 14A of the Act r.w.r. 8D(2)(iii) of the Income Tax Rules, 1962 by ignoring the fact that the assessee has suo motto disallowed a sum of Rs. 61.57 lacs which was calculated at 20% of the salary of six specified employees associated with investment activities and equal percentage on overhead expenses. During the year, the assessee has earned exempt income by way of dividend of Rs. 9,26,19,245/- and has also made suo motto disallowance of Rs. 61,97,540/- towards expenses pertaining to earning of exempt income. Accordingly, the AO issued show-cause notice to the assessee as to why disallowance u/s 14A of the Act r.w.r. 8D of Rules should not be calculated as per the said Rule 8D. The assessee submitted before the AO that tax free....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 14A of the Act r.w.r 8D(2)(iii) has not recorded the satisfaction as to how the suo motto disallowance of Rs. 61,97,540/- is wrong having regard to the books of accounts maintained by the assessee. The Ld. AR by referring to para 3.3 of the assessment order submitted that the AO has made general observation only as regards the various expenses to be disallowed and no objective satisfaction has been recorded, therefore, provisions of section 14A r.w.r. 8D(2)(iii) of the Rules have wrongly been invoked. The ld. AR submitted that general satisfaction is not valid sufficient and the AO is required to be record objective satisfaction after having seen the books of accounts of the assessee. The ld. AR in defence of his argument referred to the decision of Hon'ble Delhi High Court in the case of H.T. Media Ltd. v. PCIT [2017] 85 taxmann.com 113 (Delhi) and therefore prayed that the addition as confirmed by the ld CIT(A) as made by the AO under Rule 8D(2)(iii) may be deleted.. 7. The ld. DR on the other hand relied on the order of AO and CIT(A) by submitting that disallowance under Rule 8D(2)(iii) was rightly made by the AO and may kindly be confirmed. 8. After hearing both the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refore, even according to the Revenue, the applicability of Rule 8D (2) hinges on the recording of the AO in terms of Rule 8D (1) that he was not satisfied with the Assessee's claim regarding expenditure incurred to earn the exempt income. 34. The Assessee had explained that Rs. 3 lakhs was being disallowed voluntarily as an "expenditure which could be attributable for earning the said income." The Assessee explained that the disallowance had been determined on the basis of cost of finance department in the ratio of exempt income to total turnover. On that basis the disallowance in AY 2005-06 was upheld by CIT (A) at Rs. 1 lakh. The disallowance for this AY was worked out as Rs. 1,42,404/- and since the Assessee had already made a disallowance of Rs. 3 Lacs, no further disallowance was called for. 35. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules." 7. It is thus clear by the decision of Hon'ble Delhi H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aring both the parties and perusing the materials available on record, we observe that the identical payment was made by the assessee in the F.Y 2008-09 which was disallowed by the AO. In the appellate proceedings, the ld. CIT(A) allowed the appeal of the assessee and Revenue came in appeal before the Tribunal against the deletion of the said payment to Mr. Arata Nambu by ld. CIT(A). The Hon'ble Coordinate Bench dismissed the appeal of the Revenue in ITA No.1098/Mum/2013 A.Y 2009-10. The relevant extracted portion is reproduced as under: "15. We have given a thoughtful consideration to the issue before us in the backdrop of the contentions advanced by the authorized representatives for both the parties. As regards the disallowance of the professional fees of Rs. 43 lacs claimed by the assessee to have aid Mr. Arata Nambu, an unrelated Japanese citizen, is concerned, we find substantial force in the claim of the Id. A.R that the said payments were made to him for the services which were rendered by him as a business advisor. As is discernible from the documentary evidence to which our attention was drawn by the Id. AR, it can safely be gathered, that the aforesaid person had rend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which the assessee may produce and allow the claim. Therefore we do not find any merit in the ground of the Revenue. Moreover, the issue has been already decided by the Coordinate Bench of this Tribunal in ITA No.1098/Mum/2013 in A.Y 2009-10 by dismissing the ground raised by the Revenue and upholding the order of CIT(A). The relevant para is reproduced below: "16. We shall now advert to the contention advanced by the Id. AR, that the CIT(A) was in error in setting aside the issue pertaining to the disallowance of commission to Galaxy Automobile Pvt. Ltd. and IKON Solutions to the file of the A.O, failing to appreciate that the power to 'set aside' a matter as was vested with him under Sec.251 of the Act, were no more available w.e.f 01.06.2001. We have given a thoughtful consideration to the aforesaid contention advanced by the Id. D.R, and are unable to persuade ourselves to subscribe to his aforesaid claim in the backdrop of the facts involved in the case before us. Admittedly, the CIT(A) up to 31.05.2001 was inter alia vested with the power to 'set aside' the matter to the file of the AO. However, the legislature in all its wisdom, in order to avoid prolonged ....