Tribunal allows Cross Objection, rules in favor of assessee on disallowance issue.

The Tribunal allowed the Cross Objection of the assessee, condoning the delay in filing and dismissing the appeal. The disallowance under section 14A read with Rule 8D was deleted as the AO did not record satisfaction under Rule 8D(1) before invoking Rule 8D(2). The Tribunal emphasized the importance of recording satisfaction and following procedural rules, ruling in favor of the assessee based on legal precedents.

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Issues:
- Delay in filing Cross Objection
- Disallowance u/s 14A read with Rule 8D
- Non-recording of satisfaction by the Ld. AO in terms of Rule 8D(1)

Delay in filing Cross Objection:
The Cross Objection by the assessee was delayed by two days, attributed to the Director being out of station on the due date. The Tribunal condoned the delay, accepting the explanation provided by the Ld. AR, and admitted the Cross Objection.

Disallowance u/s 14A read with Rule 8D:
The assessee raised an additional ground challenging the disallowance u/s 14A read with Rule 8D. The Tribunal admitted the additional ground for adjudication based on a decision of the Hon’ble Supreme Court. The assessee contended that investments were made from own funds, not borrowed funds, supported by the own funds exceeding investments. The Ld. AO had not recorded satisfaction under Rule 8D(1) before invoking Rule 8D(2) for disallowance. The Tribunal relied on a Karnataka High Court decision and a Bombay High Court decision to rule in favor of the assessee, deleting the disallowance.

Non-recording of satisfaction by the Ld. AO in terms of Rule 8D(1):
The Ld. AO failed to record satisfaction as required under Rule 8D(1) before applying Rule 8D(2) for disallowance. The Tribunal emphasized the necessity of recording satisfaction with specific reference to the books of account. Relying on a Coordinate bench decision, the Tribunal held that without such satisfaction, the Ld. AO cannot make a further disallowance under section 14A.

In conclusion, the Cross Objection of the assessee was allowed, and the Tribunal dismissed the appeal, emphasizing the importance of recording satisfaction before disallowing expenses under section 14A. The judgment highlighted the necessity of proper adherence to procedural rules and legal precedents in tax matters.

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