BRIEF FACTS OF THE CASE AND QUESTION OF LAW
1. This is an appeal filed by the assessee is directed against the order of the Ld.CIT (A)-19, New Delhi dated 31.1.2013 pertaining to the Assessment Year (AY) 2009-10.The assessee is a Non Banking Finance Company and is engaged in making investments in the telecom centre and relevant ventures to promote the formation and mobilisation of capital and investments on behalf of its promoters. It filed its return of income on 30.9.2009 declaring total income of Rs.16,20,970/-. The AO determined the total income at Rs.91,87,370/- in an order passed u/s 143(3) on 19.12.2011 inter alia making disallowance of Rs.75,12,624/- u/s 14A r.w.s. Rule 8D.
2. The assessee contended before the First Appellate Authority that the AO was required to record that he has not satisfied with the correctness of the claim of the assessee with respect to expenditure incurred in relation to earning of the tax free income, before invoking provisions of s.14A.The First Appellate Authority rejected the contention of the assessee by holding that it is factually incorrect to state that the AO has not recorded his non-satisfaction with the amount of expenditure disallowed u/s 14A by the assessee.
3. It was further stated that as per the Ld.CIT (A) in the assessment order, the AO has impliedly recorded his dissatisfaction with the disallowance claimed by the assessee. He held that there is no prescribed format for recording satisfaction/dissatisfaction and that the assessment order has to be read in its entirety to see whether satisfaction/dissatisfaction is discernible and relied on the judgement of Hon’ble Delhi High Court in the case of CIT vs.ECS Ltd.
4. It was further held that The Ld.CIT (A), recorded with regard to co-terminus power of the CIT (A) with that of the assessing officer that he is not satisfied in terms of S.14A (2) that the correctness of the assessee’s claim that no expenditure has been incurred in relation to earning of exempt income and that disallowance u/s 14A has to be made as per Rule 8D. Thus the contentions of the assessee was rejected.
Question of Law:
Whether the CIT(A) erred on facts of the case and in law, in upholding the disallowance of Rs.75,12,624 /- made by the assessing officer under section 14A of the Income-tax Act, 1961 (‘the Act’) read with Rule 8D of the Income-tax Rules, 1962 (‘the Rules’) without appreciating that conditions precedent for applying provisions of Rule 8D..
CONTENTION OF THE REVENUE
The Revenue supported the orders of the authorities and contended that the Assessing Officer has recorded satisfaction and it is evident from a plain reading of the assessment order. He further submitted that the Ld.CIT (A) has given elaborate reasons on this issue and relied on the same.
CONTENTION OF THE ASSESSEE
1. The assessee contended on following points:
(i) The additional disallowance of Rs.75, 12,624 made by the assessing officer and affirmed by the CIT (A) is erroneous.
(ii) Satisfaction as required under section 14A (2) of the Act was not recorded in the assessment order, the assessing officer had no jurisdiction to apply Rule 8D of the Rules.
(iii) CIT (A) erred in holding that dissatisfaction in terms of section 14A (2) of the Act can be recorded by the CIT (A) having regard to co-terminus power with that of the assessing officer.
(iv) Disallowance computed by the assessing officer by applying Rule 8D is, in any case, erroneous
(v) Disallowance under section 14A cannot in any case exceed actual expenditure incurred and claimed by the appellant
2. It was further contended that the assessing officer has simply proceeded to apply formula prescribed in Rule 8D of the Rules on the ground that the same is applicable in the year under consideration and disallowance has to be mandatorily calculated as per the said formula. Recording of satisfaction in terms of section 14A (2) of the Act is a jurisdictional condition mandated by the said section and such satisfaction has to be recorded by the “assessing officer” and none else, if the disallowance is to be made by the assessing officer, then, satisfaction, which is a jurisdictional condition, cannot be recorded by the CIT (A), while deciding the appeal at a later stage.
HELD BY ITAT
After hearing the rival contentions, ITAT held that that the suo disallowance of Rs. 2,66,480/- made by the assessee, is in excess to the disallowance with the working under 14A r.w. rule 8D which amounts to Rs 1,33,567. ITAT upheld the contentions of the assessee and deleted the addition. As on merits, the assessee gets relief.