IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)

DATE: November 21, 2016 (Date of pronouncement)
DATE: December 6, 2016 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
S. 14A Rule 8D: The fact that the AO did not expressly record his dissatisfaction with the assessee's working does not mean that he cannot make the disallowance. The AO need not pay lip service and formally record dissatisfaction. It is sufficient if the order shows due application of mind to all aspects

(i) This Court in Commissioner of Income Tax-I vs Consolidated Photo & Finvest Ltd. (2012) 25 371 (Delhi). – following the judgment of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. vs Dy. CIT (2010) 194 Taxman 203, held that the AO has to take an overall view and not a “piecemeal decision” regarding merits of the disallowance. A close analysis of that judgment would show the AO’s view was reversed by the CIT(A) in that case which was ultimately affirmed by the ITAT. This factor significantly dissuaded the Court from exercising its jurisdiction under Section 260A of the Act.

(ii) Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted.

(iii) In this instance the elaborate analysis carried out by the AO – as indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, would not per se justify this Court in concluding that he was not satisfied or did not record cogent reasons for his dissatisfaction to reject the AO’s conclusion. To insist that the AO should pay such lip service regardless of the substantial compliance with the provisions would, in fact, destroy the mandate of Section 14A.

(iv) Having regard to these facts, this Court is satisfied that the disallowance which is otherwise in accord with Rule 8D(c) was justified. No substantial question of law arises. The appeal is dismissed.

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