TaxTMI 
TaxTMI 
2021 (8) TMI 1216
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....at on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) ["CIT(A)"] erred in upholding addition of Rs. 38,48,495 made by the assessing officer under section 14A of the Income-tax Act, 1961 ("the Act") read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 ("the Rules"), without pointing out any error in computation of expenses incurred for earning the tax free income disallowed by the Appellant. 1.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that no disallowance could be made under section 14A of the Act, without recording satisfaction reaching finding as to nexus of any expenditure incurred during the year with investments made or exempt income earned nor pointing out an error in the computation of disallowance under section 14A of the Act made by the Appellant. 1.2 Without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that investments on which no exempt income was earned were not required to be taken into account for computing disallowance as per formula prescribed under sub-rule (2)(iii) of Rule 8D of the Rules." ....
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....f case and in law, the ld. CIT (A) was not justified in deleting the addition made by the AO by disallowance of Rs. 3,14,11,091/- on account of license fee paid to Department of Telecom (DOT). "ITA NO.100/DEL/2018 (AY 2014-15) (REVENUE'S APPEAL) 1. Whether on the facts and circumstances of case and in law, the ld. CIT (A) was not justified in deleting the addition made by the AO by disallowance of Rs. 3,50,95,924/- on account of license fee paid to Department of Telecom (DOT). 2. Whether on the facts and circumstances of case and in law, the ld. CIT (A) was not justified in deleting the addition of Rs. 2,20,383/- by disallowance of this amount on account of principal portion of lease obligation." 5. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company was engaged in the business of trading of networking equipment, installation and maintenance of such equipment and creation, maintenance and operation of networks. Assessing Officer (AO) by invoking the provisions contained under section 14A of the Income-tax Act, 1961 (for short 'the Act') read with Rule 8D of the Income-tax Rules, 1962 (for short....
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.... to Exempt income Disallowance of interest expenditure 0 Interest expenditure incurred during the year Average value of investment Average of Total assets Disallowance =A*B/C (1038658620+545593586)/2 (8579578136+9034092663)/2 792126103 8806835400 0 iii. Aggregate of Opening and Closing Value of Investment (Average Value of Investment) ½% of above as per Rule 8D Value of investment total for 31.03.2012 & 31.03.2011 Average value of Investment 0.5% of above 792126103 39,60,631 Total disallowance (Aggregate of (i), (ii) & (iii) 39,60,631 Less : Already disallowed by the assessee 1,12,136 Amount to be disallowed 38,48,497 13. Undisputedly, the assessee has earned exempt dividend income of Rs. 4,23,49,389/- from investment made in debt oriented mutual fund during the year under assessment and made suo motu disallowance of Rs. 1,12,136/- by allocating proportionate expenses and has given complete computation allocating proportionate expenses in the ratio of exempt income to the taxable income, available at page 34 of the paper ....
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.... incurred on the investment in question viz. incidental expenditure of collection, telephone, follow-up, etc. but assessee company has come up with specific working that on the specific investment, it has incurred expenses to the tune of Rs. 3,46,466/-. AO as well as ld. CIT (A) without calling detail and explanation of the working for making suo moto disallowances proceeded to invoke the provisions contained under section 14A read with Rule 8D. There is no valid satisfaction recorded by the AO that working for making suo moto disallowance made by the assessee company is faulty rather proceeded to make disallowance under Rule 8D 3 @ 0.5% of average value of investment. 8. Hon'ble Delhi High Court in the identical situation in the case of HT Media Ltd. vs. Pr. CIT 199 ITR 576 (Del.) held that recording of satisfaction by the AO before invoking provisions contained under section 14A read with Rule 8D is a sine qua non. Operative part of the aforesaid judgment is extracted for ready proposal as under :- "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 h....
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....on 14A read with Rule 8D over and above the disallowance of Rs. 3,46,466/- made by the assessee, hence disallowance of Rs. 21,23,629/- made by the AO and confirmed by the ld. CIT (A) is hereby ordered to be deleted. So, Grounds No.1, 1.1 & 1.2 are allowed." 18. So, we are of the considered view that the disallowance made by the AO and confirmed by the ld. CIT (A) on the basis of invalid satisfaction as to the correctness of the claim of the assessee is not sustainable, hence ordered to be deleted. Consequently, Grounds No.1, 1.1 & 1.2 of ITA No.135/DEL/2018 for AY 2013- 14 in case of HCL Comnet Ltd. are determined in its favour. GROUNDS NO.2 & 2.1 OF ITA NO.135/DEL/2018 For AY 2013-14 (ASSESSEE'S APPEAL - HCL COMNET LTD.) GROUNDS NO.1 & 1.1 OF ITA NO.136/DEL/2018 For AY 2013-14 ITA NO.137/DEL/2018 For AY 2014-15 (ASSESSEE'S APPEAL - HCL COMNET SYSTEMS & SERVICES LTD.) 19. Assessee company being engaged in the business of trading of networking equipment, installation and maintenance of such equipments and creation, maintenance & operation of networks has deferred some part of its revenue to the subsequent financials years and revenue being def....
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....ducted at source on proportionate basis for the income declared during the year under consideration as per Rule 37BA(3)(ii) of the Rules. Consequently, Grounds No.2 & 2.1 of ITA No.135/Del/2018 for AY 2013-14 in case of HCL Comnet Ltd. and Grounds No.1 & 1.1 of ITA Nos.136/DEL/2018 & 137/DEL/2018 for AYs 2013-14 in case of HCL Comnet Systems & Services Ltd. are determined in favour of the assessee. GROUND NO.1 OF ITA NO.385/DEL/2018 (REVENUE'S APPEAL) ITA NO.100/DEL/2018 (REVENUE'S APPEAL) 24. Assessee company claimed to have paid licence fee of Rs. 6.36 crores & Rs. 3,50,95,924/- for AYs 2013-14 & 2014-15 respectively to the Department of Telecommunication (DOT) for grant of licence to operate and provide services which has been disallowed by the AO on the ground that the said licence fee paid by the assessee during the years is to be amortized in accordance with section 35ABB of the Act and after amortization disallowed an amount of Rs. 3,14,11,091/- & Rs. 3,50,95,924/- in AYs 2013-14 & 2014-15 respectively. 25. However, ld. CIT (A) by relying upon the decision rendered by the Tribunal in AYs 2006-07 to 2008-09 passed in assessee's own case deleted the disallowance....