Income Tax Appellate Tribunal - Delhi
M/S Pace Industries (P) Ltd.,, New Delhi vs Dcit, New Delhi on 31 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
SHRI O. P. KANT, ACCOUNTANT MEMBER
I.T.A. No.6829/DEL/2015
Assessment Year: 2012-13
Pace Industries (P) Ltd., v. Dy. Commissioner of Income
(for Erstwhile Pace Tax, Circle-19(2), New Delhi.
Services Pvt. Ltd.)
L2A, Hauz Khas Enclave,
New Delhi.
TAN/PAN: AAACN 0017F
(Appellant) (Respondent)
Appellant by: Ms. Meenal Goyal, CA & Shri Deepak
Jain, Adv.
Respondent by: Shri Ravi Kant Gupta, Sr.D.R.
Date of hearing: 31 01 2018
Date of pronouncement: 31 01 2018
ORDER
PER AMIT SHUKLA, J.M.:
The aforesaid appeal has been filed by the assessee against the impugned order dated 04/11/2015, passed by the ld. CIT (Appeals)-7, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13.
2. The assessee aggrieved by disallowance of 7,46,389/- made u/s.14A over and above disallowance offered by the assessee for a sum of Rs.11,59,336/- in terms of Rule 8D.
3. The brief facts of the case are that the assessee is a company engaged in the business of investment in shares, stocks, mutual funds, placement of Inter-Corporate Deposits and other allied I.T.A. No.6829/DEL/2015 2 activities. The Assessing Officer on the perusal of the balance-sheet noted that assessee had made investment in shares amounting to Rs.392.55 crores and during the year the assessee has earned dividend income of Rs.5,63,13,150/- which was claimed as exempt. For the purpose of disallowance u/s.14A, the assessee has allocated sum of Rs.11,59,336/- and added back in the computation of income. The Assessing Officer, held that the disallowance has to be worked out in terms of Rule 8D and after referring to the Circular No.14/2006 dated 28th December, 2006, he held that Assessing Officer has to apply Rule 8D which is mandatory in terms of sub- Section(2) of Section 14A; and accordingly computed out the disallowance at Rs.1,96,40,182/-. Since, the assessee itself had claimed total expenditure of Rs.30,30,067/- (except audit fees and filing fees) in the P & L account and looking to the fact that assessee has itself disallowed expenditure of Rs.11,24,342/-, he restricted the disallowance at Rs.19,05,725/- and made addition of Rs.7,46,389/- i.e. (19,05,725 - 11,59,336).
4. Ld. CIT (A) too has confirmed the said addition on the ground that in the appeal for the Assessment Year 2010-11 similar disallowance was upheld.
5. Before us, ld. counsel for the assessee submitted that though appeal for the Assessment Year 2010-11 is pending before the Tribunal, however here in this case the Assessing Officer was not justified in making further disallowance u/s.14A, when the assessee having regard to the accounts maintained and the nature of expenditure debited, itself has disallowed sum of Rs.11,59,336/- for the purpose of Section 14A. She drew our attention to the submission made by the assessee before the ld. CIT (A) which has been incorporated by the ld. CIT(A) from pages 2 to 4 and pointed out that I.T.A. No.6829/DEL/2015 3 the assessee has given the details of expenses to show that these expenses were directly related to the running of the company and without recording the satisfaction on the nature of accounts maintained, the Ld. Assessing Officer could not have disallowed the expenditure over and above what has been offered by the assessee.
6. On the other hand, learned Department Representative, strongly relied upon the order of the Assessing Officer and ld. CIT(A) and submitted that in the assessment order the Assessing Officer has mentioned that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income; and once he has recorded his satisfaction, then disallowance has to be made in accordance with Rule 8D.
7. We have heard the rival submissions and perused the relevant findings given in the impugned order. Admittedly, in this case the assessee has debited total expenditure for sums aggregating to Rs.32,67,687/-. From the said expenditure, the assessee has disallowed sum of Rs.11,030/- towards DEMAT charges and entire expenditure related to salary of directors of Rs.11,48,306/-. The other expenditures debited in the P & L account relates to salary and wages of the staff and other administrative expenses. One of the major expenditure shown in the P&L account is donation of Rs.10 lac and auditors remuneration of Rs.2,24,720/-. Ostensibly the expenditure of donation cannot be said to be relatable to earning of exempt income. Looking to the nature of expenditure debited and the account of the assessee, we find that Assessing Officer has neither examined the accounts maintained by the assessee nor the expenditure debited in the P & L account. Without recording his satisfaction on the correctness of the claim of the assessee in respect of expenditure disallowed/offered, AO cannot resort to apply Rule 8D I.T.A. No.6829/DEL/2015 4 mechanically in terms of sub-Section (2) of Section 14A. The Assessing Officer can only proceed to determine the expenditure incurred for the purpose of exempt income only when Assessing Officer having regard to the accounts maintained by the assessee is not satisfied about the correctness of the claim of the expenditure of such exempt income. Thus, if no such satisfaction is recorded then he cannot proceed to compute the disallowance. This is the mandate of Section 14A(2). The Hon'ble Jurisdictional High Court in the case of HT Media Ltd. vs. PCIT in ITA No.548 & 549/2015, judgment dated 23.08.2017 after considering the various judgments and analysis of the provision of the law held that, in order to disallow the expenditure, the Assessing Officer has to first record on examining the account that he was not satisfied with the correctness of the assessee's claim which was mandatorily required to be done in terms of Section 14A(2) read with Rule 8D(1)(a). Thus, when Assessing Officer has not recorded his satisfaction in terms of Section 14A(2) read with Rule 8D(1), then no further disallowance can be made by the Assessing Officer by invoking Rule 8D; and accordingly, the disallowance of Rs.7,46,389/- is directed to be deleted.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 31st January, 2018.
Sd/- Sd/-
[O.P. KANT] [AMIT SHUKLA]
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED: 31st January, 2018
PKK: