2015 (8) TMI 1077 - AT - Income Tax

Tribunal affirms CIT(A) decision on disallowance under section 14A, emphasizes AO's Rule 8D compliance

The Tribunal upheld the CIT(A)'s decision to delete the additional disallowance under section 14A, emphasizing the requirement for the AO to express ... Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted disallowance - Held that:- AO without recording his satisfaction that the claim of expenditure in relation to tax free income has not been correctly made by the assessee as envisaged under section 14A(2) has invoked Rule 8D.While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the AO would have to indicate cogent reasons for the same. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the AO rejects the claim of the assessee in this regard. (Maxopp Investment Ltd. v. CIT (2011 (11) TMI 267 - Delhi High Court ). The ld CIT(A) has rightly observed that the AO did not find any deficiency in the books of account nor any deficiency in respect of the claim of the assessee u/s 14A of the Act. We also find that the AO has not expressed satisfaction with the assessee's claim u/s 14A was incorrect and which is a sine quo none before invoking provisions of section 14A of the Act. We do not find any infirmity whatsoever in the reasoned order passed by the ld CIT(A) and therefore we are inclined to confirm the order of the ld CIT(A) - Decided in favour of assessee. Issues:1. Disallowance under section 14A of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Disallowance under section 14A of the Income Tax Act, 1961The case involved an appeal by the Department concerning disallowance under section 14A of the Income Tax Act, 1961, amounting to Rs. 2,57,62,256/- as per the Assessing Officer's calculation under Rule 8D. The assessee, a company belonging to a group engaged in mining and investments in group companies, voluntarily disallowed expenditure of Rs. 2,32,27,892/- as the income earned. The AO disagreed with the disallowance and made observations leading to the disallowance of Rs. 2,57,62,256/-. The CIT(A) deleted the addition made by the AO, emphasizing that the AO did not express satisfaction that the appellant's claim under section 14A was incorrect. The CIT(A) referred to the case law stating that the AO must record dissatisfaction with the claim made by the assessee before invoking Rule 8D. The CIT(A) also highlighted discrepancies in the disallowance made by the AO, directing the deletion of the extra addition. The Tribunal noted that the AO must record dissatisfaction with the claim of expenditure before invoking Rule 8D. The Tribunal upheld the CIT(A)'s order, emphasizing the AO's lack of dissatisfaction with the assessee's claim under section 14A, leading to the dismissal of the department's appeal.In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the additional disallowance under section 14A, emphasizing the requirement for the AO to express dissatisfaction with the assessee's claim before invoking Rule 8D. The Tribunal dismissed the department's appeal, affirming the CIT(A)'s reasoned order.