IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI RAJENDRA, HON BLE ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, HON BLE JUDICIAL MEMBER ITA Nos. 891 & 7351/MUM/2014 (Asst. Year : 2010-11 & 2011-12) Satyanarayan Sekhsaria Pvt. Ltd., Vs. ACIT, Range-3(3), 11-A, Mittal Chambers, Mumbai. Nariman Point, Mumbai 21 PAN No. AAACS 5489 (Appellant) (Respondent) Assessee by : Shri Vijay Mehta CA & Shri Hitendra Bhandari - CA Department By : Shri N. Sathya Moorthy - DR Date of hearing : 19/07/2016. Date of pronouncement : 17/10/2016. ORDER PER C.N. PRASAD, JUDICIAL MEMBER These two appeals filed by assessee against separate orders of ld. CIT(A)-7, Mumbai, dated 25/11/2013 & 29/09/2014 for Assessment Years 2010-11 & 2011-12 respectively. 2. Brief facts of case are that assessments were completed by Assessing Officer under section 143(3) of Act. While completing assessments, Assessing Officer disallowed Rs.16,05,051/- and Rs. 16,67,50/- under section 14A read with Rule 8D for Assessment Years 2010-11 & 2011-12 respectively. However, since assessee itself suo-motu disallowed Rs.6,05,051/- and Rs.6,67,551/- in both these assessment years, he restricted disallowance to Rs. 10 Lac. each for both assessment years while 2 ITA Nos. 891 & 7351/MUM/2014 working out disallowance under section 14A read with Rule 8D. Assessing Officer while working out disallowance considered investment made in partnership firm, which assessee has not considered while working out disallowance of 0.5% of average investment. ld. CIT(A) sustained disallowance made by Assessing Officer. 3. Authorized Representative of assessee submitted that assessee has calculated expenditure attributable for earning dividend income by taking total investments except capital introduced in partnership firm, where assessee is having only 5% share of profit. counsel for assessee further submitted that Assessing Officer has not recorded any satisfaction with regard to claim of assessee in respect of disallowance made suo-motu by assessee and in absence of any dissatisfaction recorded by Assessing Officer with regard to claim of assessee, there is no justification in invoking provisions of section 14A(2) read with Rule 8D. Authorized Representative of assessee by placing reliance on decision of coordinate Bench of this Tribunal in case of Radha Madhav Investments Ltd. in ITA NO. 6972/MUM/2012, dated 17/04/2015 submits that in absence of recording of satisfaction, provisions of Rule 8D cannot be invoked. 4. Departmental Representative supported orders of authorities below. 5. We have heard rival submissions and perused orders of authorities below. On perusal of assessment orders, we find that there is no dissatisfaction recorded by Assessing Officer with regard to suo-motu disallowance made by assessee. Assessing Officer has simply calculated disallowance by applying 0.5% on total average investments including capital investment by assessee in 3 ITA Nos. 891 & 7351/MUM/2014 firm without rejecting contentions of assessee that suo-motu disallowance of Rs. 6,05,051/- and Rs. 6,67,551/- made by assessee are not reasonable at all. In case of Radha Madhav Investments Ltd. (supra), more or less on identical situation, Tribunal has considered non-recording of dissatisfaction by Assessing Officer as under:- 2. brief facts of case are that, assessee company is engaged in business of trading of various items, investment and financing. From computation of income Assessing Officer noted that assessee has claimed following incomes as exempt from tax:- i) Dividend income of Rs.31,86,93,627/- ii) Share of profit from partnership firm Rs.13,04,48,840/-. In response to show cause notice as to why disallowance should not be made as per Rule 80, assessee submitted that it has already allocated amount of Rs.1,65,43,645/- for purpose of disallowance u/s 14A which has been made as per Rule 80 only. working of such disallowance was already enclosed with Tax Audit Report in From No. 3CD. However, Assessing Officer held that same is strictly not in accordance with Rule 80 and worked out disallowance of Rs.3,55,96,346/- as per working given at page 4 of assessment order. 3. Before Ld. CIT(A), assessee submitted that, so far as investment made in firm is concerned, same cannot be taken in value of investment as per clause (iii) of Rule 80. Further share in profit of firm is allocated amongst partners only when firm has paid taxes. Thus, partner has already suffered tax paid by firm. Besides this it was also pointed out that assessee has incurred business expenses of 8.60 crores which were mostly incurred for business purpose and there are no expenses directly related to earning of dividend income. Accordingly, no disallowance over and above should be made. However, Ld. CIT(A) held that disallowance has to be made strictly within Rule 80 and confirmed disallowance without considering assessee's submission. This is evident from following finding given by Ld. CIT(A). ''I have considered AOs order as well as appellant ARs submissions. Having considered both, I find that AO has applied jurisdictional High Court decision I 4 ITA Nos. 891 & 7351/MUM/2014 case of M/s. Godrej & Boyce Mfg. Co. Ltd. while making disallowance. As jurisdictional High Court has held that Rule 80 is applicable from A. Y. 2008-09 onward. It is also fad that appellant company has got substantial exempt income which has been mentioned by AO in para 5.1 of order. I view of same and taking note of provisions of section 14A of Act;. I am of considered view that disallowance made by AO is completely justified and accordingly confirmed. In view of same, appellants this ground of appeal is dismissed. " 4. Before us, learned counsel Shri Vijai Mehta, submitted that assessee has already offered huge disallowance of Rs.l,65,43,645/- which was as per Rule 80 only. disallowance was made after taking average investments made in shares, whereas, Assessing Officer has included investment made by way of capital in partnership firm. investment in capital of firm was coming from earlier years. Once assessee has itself attributed disallowable expenses, Assessing Officer without recording his satisfication or being satisfied with correctness of claim of assessee cannot proceed to make further disallowance under Rule 8D. IT is more so, in this case when assessee has duly placed before Assessing Officer, nature of expenses as appearing in schedule 12 & 13 of P & L account which will go to show that most of expenses were incurred for business carried out by assessee. Thus, without rejecting claim of assessee and without recording satisfaction, Assessing Officer cannot make further disallowance. In support of his contention he relied upon various cases laws. He also filed analysis of expenditures debited to P&L Account, in order to show that major expenses have been incurred for assessee's other business. 5. On other hand, Ld. DR strongly relied upon order of Ld. CIT(A). 6. We have heard rival submissions and also perused relevant material placed on record. As discussed above, assessee has already offered disallowance of amount of Rs.1,65,43,645/- for allocating indirect expenses under Rule 8D. Once, assessee has attributed expenses for purpose of disallowance, then it is incumbent upon Assessing Officer to examine correctness of such claim of expenditure and if, having regard to accounts of assessee he is not satisfied to such correctness of claim, then he can proceed to determine amount of expenditure incurred which 5 ITA Nos. 891 & 7351/MUM/2014 can be said to be attributable for earning of exempt income. This is mandate of law under section 14(2). In other words, once he has fulfilled conditions laid down in section 14(2) then, only he can proceed to vary disallowance u/s 14A. Here in this case AO has failed to fulfilthe requirement of section 14(2), and without being satisfied about correctness of claim has proceeded to disallow, which is not correct approach. 6. Therefore, in case on hand also, Assessing Officer has not recorded any dissatisfaction on correctness of claim made by assessee. Assessing Officer should not have invoked provisions of Rule 8D without recording satisfaction on correctness of claim made by assessee with reference to books of account that expenses disallowed by assessee are not reasonable. Thus, we delete disallowance made by Assessing Officer under section 14A read with Rule 8D. 7. In result, both appeals of assessee are allowed. Order Pronounced in open Court on 17th October, 2016 Sd/- sd/- (RAJENDRA) (C.N. PRASAD) Accountant Member Judicial Member Dated : 17 t h Oct., 2016. vr/- Copy to: 1. Assessee. 2. Revenue. 3. CIT 4. CIT(A) 5. D.R. 6. Guard file. By order //True Copy// Assistant Registrar I.T.A.T., Mumbai Satyanarayan Sekhsaria Pvt. Ltd. v. ACIT, Range-3(3), Mumbai