TaxTMI 
TaxTMI 
TaxTMI 
2015 (8) TMI 1516
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....ce u/s 14 A should be made. After considering the submission of the assessee, the AO held that provision of Section 14 A were applicable in this case. Accordingly he computed disallowance under Rule 8D(2)(ii) at Rs. 9257/- and under Rule 8D(2)(iii) at Rs. 2,89,293/- and a total disallowance amounting to Rs. 2,98,550/- was thus made under section 14 A read with Rule 8D. 3. The assessee went in appeal before the CIT(A). Here the assessee's submissions were threefold. Firstly, it was submitted that in view of the fact that assessee himself has disallowed an amount of 1,81,677/- suomoto in its return of income, the AO cannot straight away resort to the provision of Rule 8D, without recording his satisfaction to the effect as to how the disallowance so made by the assessee itself was wrong. Secondly under Rule 8D(2)(ii) no disallowance is warranted as the only amount of interest claimed by the assessee in its P&L account is related to vehicle loan taken by the assessee and no apportionment of the same can be made for the purposes of being related to tax free income. Thirdly, it was contended that, while computing the disallowance under Rule 8D(2)(iii), the AO had taken the average of t....
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....t in any case the disallowance is against the law and the facts of the case. 5. Ld. Counsel of the assessee, before me, raised threefold contentions. Firstly it was argued that the assessee itself disallowing an amount of Rs. 1,81,677/- on account of Portfolio Management Scheme (PMS) expenses, being administrative expenses related to earning of exempt income, the AO did not bring on record that any other expenditure has been incurred to earn exempt income and straight away made the disallowance u/s 14A of the Act read with Rule 8D. For this proposition he placed reliance on a number of judgments, including that of the jurisdictional Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd. (2015) 56 Taxmann.com 391(P&H) dt. 27/01/2015 & CIT Vs. Deepak Mittal 361 ITR 131 (P&H) dt. 03/09/2013. 6. The second limb of AR's argument was that while making disallowance under Rule 8D(2)(iii) it is only the average of those investments which have yielded exempt income are to be taken into consideration and not the average of all investments as has been done by the AO in this case. The argument put forth was that though CIT(A), agreed in principle with this proposition, wh....
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..... Same argument were reiterated before the CIT(A) also. 11. In such a scenario, the A.O. had to record a satisfaction as to why he is not satisfied with the disallowance made by the assessee. Under Sub Section (2) to Section 14A, the AO is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, he can determine the amount of expenditure which should be disallowed in accordance with the method prescribed, i.e; Rule 8 D. Sub Rule (1) of Rule 8 D also categorically states the same position. Sub Rule (2) will not came into operation unless and until the specific condition prescribed under Sub Rule (1) are satisfied. I do not find any such satisfaction being recorded in the present case by the AO, before he invoked Sub Rule (2) of Rule 8D of the Rules & made the recomputation. 12. There are a number of judicial pronouncements to this proposition by many High Courts, including the jurisdictional Punjab & Haryana High Court. In the case of Abhishek Industries Ltd. (supra), on which the counsel of the assessee has also placed reliance, it has been held that....
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....ce of PMS expenses amounting to Rs. 1,81,667/- made by the assessee. A detail of these expenses were also filed during the course of hearing, stating that these are the only expenses incurred by the assesse for earning tax free income. It was also stated at the bar that the tax free income has been earned only through the portfolio management by these portfolio managers only. It was also stated that no other expenditure was incurred to earn the said tax free income. Now the only issue to be decided is whether the credit of PMS expenses should be given to the assessee under Rule 8D(2)(i) or Rule 8D(2)(iii) . The AO has not given credit of the said expenses while computing disallowance under Rule 8D. However it can be seen that, while computing this he has computed NIL amount under Rule 8D(2)(i) and Rs. 289293/- under Rule 8D(2)(iii). There is no dispute before me regarding Rule 8D(2)(ii). The CIT(A), however while adjudicating the issue has held that the credit of PMS expenditure has been given under Rule 8D(2)(i) by the AO. His finding to this effect has already been quoted earlier in this order. In principle he has accepted the proposition of the assessee that credit of PMS expens....