Brief of the case:
In this case AO made certain addition being disagreed from the submissions of the assessee. Being aggrieved from the assessment order assessee filed appeal before CIT (A). After considering submissions of the assessee and noticing that the provisions of Section 14A has to be invoked and disallowance has to be made in accordance with rule 8D which was effective from AY. 2008- 09, he directed assessee to furnish calculation of disallowance as per rule 8D, which worked out to Rs. 92,43,413/-.
AO was directed to verify the working so given and consider the amount arrived at such working as per rule 8D for making disallowance. AO instead of verifying the claim of assessee as per direction of AO made further enhancement which was confirmed by CIT (A) subsequently. On appeal to ITAT partly allowed the appeal and held that AO’s jurisdiction is restricted to verifying the working provided by assessee and if he is not satisfied with the working, he can at best disallow the amount originally disallowed by the AO.
Facts of the case:
- Assessee is a banking company, a subsidiary of State Bank of India. In the scrutiny completed u/s 143(3), AO determined the total income at Rs. 11,08,81,44,314/- as against the returned income of Rs. 654,70,28,828/- which was revised to Rs. 558,93,59,842/-.
- In the additions made in the said order, one addition which is under dispute is with reference to the disallowance u/s 14A. AO noticed that assessee has earned an amount of Rs. 5,11,26,104/- which was claimed as exempt during the year under consideration.
- Assessee has quantified the expenditure of the treasury department at Rs. 65,50,068/- and as per the orders of CIT(A) / ITAT in earlier years, considered two months of the expenditure of the treasury as expenditure attributable to earning the exempt income. Accordingly, an amount of Rs. 10,91,681/- was disallowed by assessee against the claim of exempt income.
- AO did not agree with assessee’s contention. He therefore based on the ratio of operating expenditure and interest expenditure to the total revenue of Rs. 5,080 Crores arrived at a ratio of 80.48% of expenditure.
- Adopting the same ratio, AO determined the expenditure to be disallowed at Rs. 4,11,46,288/-.
- Assessee contested this issue before CIT(A) who noticed that the provisions of Section 14A has to be invoked and disallowance has to be made in accordance with rule 8D which was effective from AY. 2008- 09, he directed assessee to furnish calculation of disallowance as per rule 8D, which worked out to Rs. 92,43,413/-.
- AO was directed to verify the working so given and consider the amount arrived at such working as per rule 8D for making disallowance.
- AO in the consequential order passed on 30-03-2013, however, arrived at the proportionate expenses at Rs. 10,98,40,899/-.
- As there was enhancement by the disallowance of interest claim in banking operations, the matter was again carried to the CIT(A) in appeal who dismissed the appeal.
Contention of the revenue:
