ITO vs. Reliance Share and Stock Brokers (P) Ltd (ITAT Mumbai)

Re Disallowance made u/s 14A r.w. rule 8D

(i) It is now settled principle that the assessing officer has to examine the disallowance made by the assessee by having regard to the accounts of the assessee and only thereafter the AO, if he is not satisfied with the correctness of the claim, shall determine the disallowance to be made u/s 14A of the Act in accordance Rule 8D. In this regard, a gainful reference may be made to the decision rendered by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd (328 ITR 81). It is also pertinent to note the decision rendered by Hon’ble Delhi High Court in the case of Maxopp Investment Ltd Vs. CIT (347 ITR 272), wherein the Hon’ble Delhi High Court has expressed the view that the assessing officer has to first reject the claim of the assessee with regard to the extent of expenditure by having regard to the accounts of the assessee and such rejection must be for disclosed cogent reasons. It is only then that the question of determination of expenditure u/s 14A by the assessing officer would arise. In the instant case, we notice that the workings furnished by the assessee for interest disallowance was not examined at all by the AO, whereas he is required to reject the workings furnished by the assessee after having regard to the accounts of the assessee.

(ii) Further we notice that the revenue could not controvert the finding given by the Ld CIT(A) that the assessee was able to establish the nexus between the borrowings and the investments. We have also noticed that the finding so given by the first appellate authority was correct as per the workings furnished by the assessee in the table extracted above. It is also pertinent to note that the revenue did not find fault with the said workings. Under these circumstances, we are of the view that the ld CIT(A) was justified in holding that the interest disallowance was required to be made under Rule 8D(2)(i) of the I.T Rules and also in confirming the disallowance of interest to the extent of Rs.29,91,393/-, as worked out by the assessee.

Disallowance of consent fee paid to SEBI

(iii) The Circular issued by SEBI for “Consent appliation” clearly specifies that the action taken under section 11 of the Act fall in the category of “administrative or civil action”. Further, order passed by SAT also clearly states that the irregularities alleged against the assessee are “technical violations”. Most of all, the amount of Rs.50.00 lakhs paid by the assessee are not related to the penalty, if any, imposed by the SEBI, rather it was a “Consent Fee” paid by the assessee for settlement of dispute, legal expenses and other administrative charges of SEBI. The said amount was paid clearly specifying that it was paid without admitting or denying the guilt. Hence, in our view, it cannot be said that the assessee has paid the amount of Rs.50.00 lakhs by duly accepting or upon proving the irregularities alleged against it. On the contrary, it is the case of the assessee that it has taken the decision to settle the dispute on commercial expediency and upon business interests.