TaxTMI 
TaxTMI 
2021 (7) TMI 880
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....s..19,67,82,338/- and Rs..50,68,63,128/- respectively for the assessment years 2012-13 and 2013-14. On appeal Ld.CIT(A) deleted the interest disallowance made under Rule 8D(2)(ii) of I.T. Rules. In so far as the disallowance under Rule 8D(2)(iii) of I.T. Rules is concerned the Ld.CIT(A) held that for the purpose of computing the disallowance under Rule 8D investments which are capable of earning tax free income have to be considered irrespective of whether the dividend income has been earned or not. 3. Against this order of the Ld.CIT(A) the assessee is in appeal against the sustenance of disallowance under Rule 8D(2)(iii) of I.T. Rules. Whereas the revenue is in appeal against deletion of disallowance under Rule 8D(2)(ii) of I.T. Rules and in directing the Assessing Officer to consider only investments which are capable of earing tax free income in computing the disallowance under rule 8D(2)(iii) of I.T. Rules. 4. Before us, the assessee has raised the following additional grounds in both these assessment years: - "1. Re: Disallowance under section 14A of the Income-tax Act, 1961 1.1 On the facts and the circumstances of the case and in law. the Commissi....
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.... National Thermal Power Co. Ltd v. CIT [229 ITR 383] the same may be admitted for adjudication. 6. On hearing both sides we are of the view that the issues are only legal issues and following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT (supra) we admit the additional grounds for adjudication. 7. Coming to the additional Ground No.1 i.e., in respect of disallowance u/s. 14A of the Act, Learned Counsel for the assessee submitted that the Assessing Officer has not recorded any objective satisfaction in rejecting the assessee's suomoto disallowance made u/s. 14A before invoking the provisions of rule 8D r.w.s. 14A of the Act by the Assessing Officer. Ld. Counsel for the assessee submits that the Assessing Officer did not specifically record that he has not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of total income. Ld. Counsel for the assessee submits that on a perusal of the Assessment Order it is evident that the Assessing Officer has recorded only general satisfaction and not objective satisfaction having regard to the Books of Acc....
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....ock Option Plan (ESOP), Learned Counsel for the assessee placing reliance on the Special Bench of Bangalore in the case of Biocon Limited v. DCIT [144 ITD 21] submitted that, the Special Bench of Tribunal held that discount on ESOP is an allowable deduction u/s.37(1) of the Act. Ld. Counsel for the assessee further submits that the decision of the Special Bench of the Tribunal has subsequently been affirmed by the Hon'ble Karnataka High Court in the case of CIT v. Biocon Limited [430 ITR 151 (Kar)]. Ld. Counsel for the assessee also placed reliance on the decision of the Mumbai bench of the Tribunal in the case of Mahindra & Mahindra Ltd., v. DCIT in ITA.No. 1449/Mum/2016 and 7382/Mum/2017 dated 19.06.2020 wherein similar issue has been decided in favour of the assessee. 12. Ld. DR vehemently supported the orders of the Assessing Officer. In so far as additional grounds are concerned the Ld. DR strongly opposed for admission and adjudication of the additional grounds. 13. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. With respect to the disallowance u/s. 14A of the Act, on a perusal of the Assessment Order fo....
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....l income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the VBC 32 ITXA626.10 accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law......." 16. Further, identical issue came up before Hon'ble Bombay High Court in the case of Pr.CIT v. Bombay Stock Exchange Ltd., (2020) 185 DTR 390 (Bom), and the Hon'....
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....y referring to the books of accounts of the assessee. Therefore, in our opinion, the AO has failed to meet the conditions precedent for invocation of provisions u/s 14A r.w. Rule 8D. The case is squarely covered by the decision of Hon'ble Delhi High Court in the case of H.T. Media Ltd. (supra) wherein the relevant paragraphs are reproduced below: "30. Rule 8 D (1) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expenditure or (b) the claim made by the assessee that no expenditure has been incurred. Unless this stage is crossed i.e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee's accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory prerequisite for applying Rule 8D (2) is fairly well-settled. 31............... 32. The question regarding the failure of the AO to record his dissatisfaction with the correctness of the Asses....
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....IT(A) on this issue cannot be sustained. We therefore set aside the order of CIT(A) and direct the AO to delete the disallowance made under Rule 8D(2)(iii)." 18. We observe that the facts for the assessment years under consideration i.e., assessment years 2012-13 and 2013-14 are identical to the facts for the assessment years 2010-11 and 2011-12 wherein similar and general satisfaction identically worded was recorded by the Assessing Officer and the Tribunal deleted the disallowance made u/s. 14A of the Act. 19. In the circumstances respectfully following the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd., v. CIT (supra) and the decisions of the Hon'ble Jurisdictional High Court referred to above , we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of I.T.Rules for the assessment years 2012-13 and 2013-14 by accepting the suomoto disallowance of expenditure considered by the assessee for earning exempt income for the purpose of computing the disallowance u/s. 14A r.w. Rule 8D of I.T.Rules. Additional ground No.1 filed by the assessee is allowed. 20. As we have allowed additional ground No.1 of the grou....