2019 (3) TMI 1676 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Disallowance: Emphasizes Procedural Fairness and Statutory Compliance

The Dy. Commissioner of Income Tax-14 (1) (2), Mumbai Versus M/s Godrej Investment Ltd.

The Tribunal upheld the deletion of disallowance by CIT(A) in two Misc. Applications of Revenue concerning disallowance under section 14A read with Rule ... Rectification u/s 154 - Addition u/s 14A - AO could not show how the AO has recorded the satisfaction except merely writing a theoretical line that the provisions of section 14A read with Rule 8D of the Rules applies - HELD THAT:- We have gone through the assessment order again and the order of the Tribunal and noted that the AO has nowhere pointed out from the accounts of the assessee that the assessees suo moto is wrong and there is no basis or recording of satisfaction. Hence, we find no error in the order of the Tribunal which is apparent on record. MA’s of the Revenue are dismissed Issues:Common issue in two Misc. Applications of Revenue regarding alleged mistake apparent from record in ITAs No. 1178/Mum/2013 & 5879/Mum/2012 related to disallowance under section 14A of the Act read with Rule 8D of the Rules.Analysis:The Revenue contended that the AO rejected the amount offered by the assessee for disallowance of expenses relating to exempt income, not in accordance with Rule 8D. The Tribunal order confirmed the deletion of disallowance by CIT(A) due to AO's failure to record satisfaction for rejecting the claim of expenditure disallowed by the assessee. The Sr. Departmental Representative argued that the AO did record satisfaction, citing Para 5 of the assessment order. However, the Counsel for the assessee challenged this, stating the AO did not point out any error in the assessee's accounts or provide a basis for rejecting the claim.Upon review, the Tribunal found no error in its order, noting that the AO did not demonstrate any mistake or provide a valid basis for rejecting the assessee's claim. The Tribunal emphasized that there was no recording of satisfaction by the AO regarding the disallowance made by the assessee. Consequently, the Tribunal dismissed the Misc. Applications of Revenue, upholding its original decision and finding no apparent error in its order.This judgment highlights the importance of the AO recording proper satisfaction when disallowing expenses related to exempt income under section 14A read with Rule 8D. It underscores the necessity for a valid basis and clear demonstration of errors in the assessee's accounts before rejecting their claims, ensuring procedural fairness and adherence to statutory provisions.