Cyrus Investments P.Ltd, Mumbai vs Assessee
- CitationI.T.A. No.2705 /Mum/2013
Ratio decidendi
The rule this decision rests on
The Assessing Officer cannot apply the method prescribed under Rule 8D of the Income Tax Rules to compute disallowance under section 14A without first recording, on the basis of the material before him, a determination that the assessee's own claim of expenditure relating to exempt income is incorrect or unsatisfactory; the Rule 8D computation is available only after that threshold determination has been made. Where the Assessing Officer has not determined that the assessee's claim of expenditure in relation to exempt income is incorrect, and has proceeded directly to a Rule 8D computation, the matter must be restored to him to verify the correctness of the assessee's claim and to decide the disallowance afresh in accordance with law.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
सव[ौी जोगींि िसंह, Ûयाियक सदःय एवं नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.2705 /Mum/2013 िनधा[रण वष[ / Assessment Year : 2009-10 (िनधा[ M/s. Cyrus Investments बनाम The ACIT-1(1), बनाम/ Pvt. Ltd., Aayakar Bhavan, Vs. Esplanade House, M.K. Road, Hazarimal Somani Marg, Mumbai-400 020 Fort, Mumbai-400 001 ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACC 2880P (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent) अपीलाथȸ ओर से/ Appellant by: Shri Biharilal ू×यथȸ कȧ ओर से/Respondent by: Shri Neil Philip
सुनवाई कȧ तारȣख / Date of Hearing :19.01.2015 घोषणा कȧ तारȣख /Date of Pronouncement :19.01.2015
आदे श / O R D E R
PER N.K. BILLAIYA, AM:
This is an appeal by the assessee preferred against the order of the Ld. CIT(A)-1, Mumbai dt.07.02.2013 pertaining to A.Y.2009-10.
2. The assessee has raised two substantial grounds of appeal. Ground No. 1 relates to the disallowance made u/s. 14A r.w. Rule 8D.
2 ITA No. 2705/Mum/2013 3. The assessee is a non-banking finance company engaged in the business of financing. The return for the year was selected for scrutiny assessment. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has earned dividend income of Rs. 27,03,29,550/- and the same was claimed as exempt/- u/s. 10(34) of the Act. The assessee was asked to explain why the appropriate disallowance be not made out in respect of expenses incurred for earning the dividend income. The assessee replied that it is a non-banking finance company hence Sec. 14A is not applicable.
3.1. The submissions of the assessee were outrightly rejected by the AO. The AO was of the firm belief that Rule 8D is applicable and the disallowance need to be made u/s. 14A of the Act. The AO proceeded by computing the disallowance as per Rule 8D and disallowed Rs. 60,01,670/-.
4. The assessee carried the matter before the Ld. CIT(A) but without any success.
5. Before us, the Ld. Counsel for the assessee stated that the assessee has suo-motu disallowed Rs. 17,15,000/- and the AO has not pointed out any error or defect in the disallowance made by the assessee. Without recording any dissatisfaction in respect of the claim made by the assessee, the AO erred in computing the disallowance as per Rule 8D.
6. Per contra, the Ld. Departmental Representative strongly supported the orders of the authorities below.
7. We have carefully perused the orders of the lower authorities. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.
3 ITA No. 2705/Mum/2013 Ltd. Vs DCIT& Another 328 ITR 81 has held that sub-section (2) of Sec. 14A does not enable the Assessing Officer to apply the method prescribed by Rule 8D without determining in the first instance the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the Rules. Taking a leaf out of these observations of the Hon'ble Jurisdictional High Court, we restore the issue to the file of the AO. The AO is directed to verify the correctness of the claim of the assessee and decide the issue afresh as per provisions of the law. Ground No. 1 is allowed for statistical purpose.
8. Ground No. 2 relates to the denial of the deduction of suo-motu disallowance made by the assessee out of the total disallowance computed by the AO.
9. As we restored the issue of computing the disallowance to the file of the AO, the AO is directed to decide this issue also afresh after computing the disallowance u/s. 14A r.w. Rule 8D. This ground is allowed for statistical purpose.
10. In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced in the open court at the time of hearing on 19th January, 2014.
Sd/- Sd/- (JOGINDER SINGH ) (N.K. BILLAIYA) Ûयाियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER
मुंबई Mumbai; Ǒदनांक Dated : 19.01.2015 व.िन.स./ RJ , Sr. PS 4 ITA No. 2705/Mum/2013
आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai
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