Disallowance us 14A for practicing Senior Advocate of Supreme Court deleted as AO was not dissatisfied with correctness of claim made by assessee-ITAT

Disallowance us 14A for practicing Senior Advocate of Supreme Court deleted as AO  was not dissatisfied with correctness of the claim made by assessee-ITAT

ABCAUS Case Law Citation:
ABCAUS 1087 (2016) (12) ITAT

Important Case Laws cited:
CIT vs. Taikisha Engineering Ltd.

Brief Facts of the Case:
The assessee of the case was a famous senior advocate practicing at the Hon’ble Supreme Court. The Assessee had filed the return declaring income of Rs. 13,58,38,450/-. The case was processed u/s 143(1) of the Income Tax Act, 1961 (Act). Later, the case was selected for scrutiny and the Assessing Officer (AO) issued the notice u/s 143(2). The assessee had shown income under the heads income from salary, income from house property, income from profession, income from capital gain and income from other sources.

Regarding the disallowance u/s 14A in respect of expenses incurred relating to exempt income, the assessee contended that it had already added back an amount of Rs. 50,400/- from the expenses claimed as non-deductible expenditure incurred by the assessee.

However, AO observed that assessee had not provided any details of cost incurred as fee paid to mutual fund agents/ portfolio managers. AO further observed that the assessee had made investments for earning exempt income throughout the year. The AO was of the view that managing such a large portfolio entail expenses right from diversion of manpower / staff for indulging in investment activities to various activities like visiting banks, use of vehicle and telephone, use of internet if portfolio management is web based, cost of computer and its depreciation, computer operator, consequent electricity, use of office premises, fee charged by mutual fund agents/ bankers, portfolio record maintenance and its tracking to ensure time sale/purchase of mutual fund units, etc. Accordingly, in view of provision of section 14A read with Rule 8D of the Income Tax Rules, 1962, an expenditure of Rs. 14,56,385/- was determined by the AO as attributable to the earning of exempt income and was added back to the income of the assessee.

Aggrieved with the assessment order, the assessee preferred an appeal before the CIT(A), who partly allowed the appeal and sustained the addition of Rs. 14,56,385/-. Not satisfied with the order of First Appellate Authority (FAA), the assessee had filed the present appeal before the Tribunal.

Contentions of the Assessee:
It was stated that disallowance made out of expenses incurred by the assessee in the course of his practice as a Senior Advocate was not sustainable as at no stage It had been said by the authorities that they found any dissatisfaction as regards the correctness of the claim made by the assessee..

Observations made by the ITAT:
The Tribunal observed that no disallowance under section 14A was sustainable in the eyes of law as the disallowance out of expenses incurred by the assessee in the course of his practice as a Senior Advocate was not sustainable as at no stage it had been said that the authorities found any dissatisfaction as regards the correctness of the claim made by the assessee.

The Tribunal place reliance on the case of Taikisha Engineering India Ltd. where it had been held by the High Court that it was only when the AO is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed.

Held:
Disallowance made by the AO and confirmed by the CIT(A) was deleted