28-02-2019, Rajshri Productions, Section 14A, 8D, Tribunal Mumbai

Section - 14A, 8D

Order Date - 28-02-2019

Favouring - Partly

Court - Tribunal Mumbai

Appellant - Rajshri Productions Pvt. Ltd.

Respondent - ACIT

Justice - G.S. Pannu VP & Ravish Sood JM

Citation - 219Taxpundit148

Appeal No. - ITA Nos.3477 & 3478/Mum/2017

Asstt. Year - 2011-12

PER : RAVISH SOOD, JM

The assessee has preferred the captioned appeals against the respective orders passed by the CIT(A)-4, Mumbai, for A.Y: 2011-12, which in turn arises from the respective orders passed by the A.O under Sec.143(3), dated 26.11.2013 AND under Sec.143(3) r.w.s. 147, dated 31.10.2014. We shall first take up the appeal of the assessee against the order passed by the CIT(A) in respect of the assessment framed by the A.O under Sec. 143(3), dated 26.11.2013. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:

“1. On the facts and circumstances of the case and in law Ld Commissioner of Income Tax (Appeals) -4 [hereinafter referred to as Ld. CIT (A)] erred in confirming the action of Ld Assessing Officer (hereinafter referred to as Ld. AO) of disallowance of Rs.2,13,382/- under section 14A r.w.s. as per Rule 8D(2)(iii) being 0.5% of the value of average investments earning exempt income.

2. Without Prejudice to the above Ground of Appeal, Ld CIT (A) erred in confirming the action of Ld AO of not considering the claim of the appellant & straightway embarked upon computing disallowance under rule 8 D.

3. Without Prejudice to the above Ground of Appeal, Ld CIT (A) erred in confirming the action of Ld AO of not considering the disallowance made by the Appellant amounting to Rs.43,131/- towards Portfolio Management Fees and that the Ld. A.O. has failed to record a finding as contemplated by Section 14-A(2) having regard to the accounts and other facts and failed to establish any nexus whatsoever with any of the items of expenditure and exempt income.

4. That the order of Ld CIT (A) is bad in law and on facts

5. The Appellant craves leave to add or amend the foregoing grounds of appeal.”

2. Briefly stated, the assessee company which is engaged in the business of production of feature films and TV serials had e-filed its return of income for A.Y. 2011-12 on 29.09.2011, declaring total income at Rs.1,82,28,320/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Income Tax Act, 1961 (for short IT Act‟).

3. During the course of the assessment proceedings, it was observed by the A O that though the assessee during the year had earned dividend income which was claimed as exempt, however, no expenses incurred for earning the same were suo motto disallowed by it. The A.O holding a conviction that some expenditure definitely would have been incurred by the assessee for earning of the exempt income, thus worked out the disallowance under Sec.14A r.w. Rule 8D(2)(iii) at Rs.2,13,382/-.

4. Aggrieved, the assessee assailed the order passed by the A.O in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee was however not persuaded to subscribe to the same and dismissed the appeal.

5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the A.O had mechanically worked out the disallowance under Sec.14A at Rs.2,13,382/-. It was submitted by the ld. A.R that the A.O had failed to record his satisfaction while dislodging the claim of the assessee that no expenditure was incurred for earning of the exempt dividend income. The ld. A.R drawing support from the judgment of the Hon‟ble Supreme Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT & Anr. (Civil Appeal No. 7020 of 2011; dated 08.05.2017), submitted that where an AO makes a disallowance under Sec.14A r.w. Rule 8D without arriving at a satisfaction as regards the correctness of the claim of the assessee, on the basis of its accounts as were placed before him, the same could not be sustained in the eyes of law. It was submitted by the ld. A.R that the disallowance made by the A.O under Sec.14A without satisfying the mandate of law could not be sustained and was liable to be vacated.

6. Per contra, the ld. D.R relied on the orders of the lower authorities.

7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. In our considered view the very process of determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the A.O. returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. In fact, the A.O before

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