2016 (10) TMI 1278 - AT - Income Tax

Appeal success: Interest disallowance overturned under IT Act.

The appeal was allowed in favor of the assessee. The disallowance of interest paid on loans for share application money under section 14A of the Income ... Disallowance u/s 14A - AO non recording satisfaction with regard to the incorrectness of claim of the assessee having regard to the accounts of the assessee - HELD THAT:- As decided in own case even though the AO has made the disallowance by relying on the provisions of section 14A but he did not comply with the conditions as stipulated in section 14A(2). He has not recorded any satisfaction with regard to the incorrectness of claim of the assessee having regard to the accounts of the assessee having no such evidence or material brought to my notice by the D/R which may show that the AO has given a finding on the basis of accounts maintained by the assessee that he is not satisfied with the claim of the assessee. Even the AO has not recorded the satisfaction as regards to the claim of the assessee. He is bound to compute the disallowance in accordance with such method as may be prescribed. It is the rule 8D which has been notified with effect from 24.03.2008. The assessment year involved is the assessment year 2009-10. No whisper whatsoever by the AO or by the ld. D/R that the AO has computed the disallowance by applying Rule 8D. It is a case where no disallowance can be made. - Decided in favour of assessee. Issues:1. Disallowance of interest paid on loans for share application money under section 14A of the Income Tax Act, 1961.Analysis:The appellant filed an appeal against the order of the ld. CIT(A) confirming the disallowance of Rs. 1.80 lacs made by the AO under section 14A of the Income Tax Act, 1961. The AO disallowed the interest paid on loans taken for share application money of Rs. 1,60,00,000 given to M/s. Career Point Info System Ltd. The ld. CIT(A) upheld the AO's action, stating that the investment was wrongly shown as investments in the balance sheet, and no evidence was produced to show the intention to earn profits from the investment. The shares were not listed on any Stock Exchange, and the share application money was returned. The ld. CIT(A) cited judicial decisions to support the disallowance under section 14A. The appellant's contentions were found to be not applicable to the case. The ld. CIT(A) confirmed the disallowance of Rs. 1,80,000 under section 14A.As per the ITAT Jaipur SMC Bench's decision in the appellant's own case for the assessment year 2009-10, it was noted that the AO did not comply with the conditions stipulated in section 14A(2) while making the disallowance. The AO did not record any satisfaction regarding the incorrectness of the claim of the assessee or compute the disallowance in accordance with Rule 8D. Since Rule 8D was not applied, the ITAT Jaipur SMC Bench held that no disallowance could be made. Accordingly, the order of the ld. CIT(A) was set aside, and the appeal of the assessee was allowed.Therefore, based on the decisions of the ITAT Jaipur SMC Bench in the appellant's own case for the assessment year 2009-10, the appeal of the assessee in the present case was allowed.