2017 (6) TMI 495 - AT - Income Tax

Tribunal Allows Appeals on Disallowances & MAT, Emphasizes AO's Rule 8D Compliance

Moonstar Securities Trading and Finance Co. Pvt Ltd Versus ACIT, Central Circle-13, New Delhi

The Tribunal allowed all three appeals filed by the assessee, directing the deletion of disallowances under Section 14A and corresponding additions to ... Assessment u/s 153A - addition u/s 14A - Held that:- Assessing Officer straightway asked the assessee vide letter dated 09.08.2011 that vide Rule 8D shall not be applied in the case of the assessee. According the provisions of section 14A(2) the AO is duty bound to examine the claim of the assessee having regard to the accounts of the assessee should record his satisfaction about the correctness of the claim. In the present case we do not find any such satisfaction recorded by the ld Assessing Officer. In absence of any satisfaction recorded by the ld AO as provided u/s 14A(2) of the Act the disallowance u/s 14A applying provisions of Rule 8D cannot be sustained. In view of this we reverse the order of the ld CIT(A) we direct the ld Assessing Officer to delete the disallowance - Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 153A of the Income Tax Act, 1961.2. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.3. Addition of disallowance to book profits for computation of MAT liability under Section 115JB of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction under Section 153A of the Income Tax Act, 1961:The assessee contested the jurisdiction of the Assessing Officer (AO) under Section 153A, arguing that the order was without jurisdiction and bad in law. The Tribunal noted that the assessment was completed under Section 153A post a search and seizure operation. The Tribunal referenced the Delhi High Court's decision in CIT vs. Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material found during the search. In this case, no incriminating material was presented by the Revenue that could justify the disallowance under Section 14A. Hence, the Tribunal reversed the findings of the CIT(A) and directed the AO to delete the disallowance.2. Disallowance under Section 14A read with Rule 8D:a. Assessment Year 2008-09:The AO disallowed Rs. 2,43,40,709 under Section 14A, applying Rule 8D. The Tribunal found that no incriminating material was found during the search, and the AO did not provide any justification for the disallowance. Thus, the Tribunal directed the deletion of the disallowance.b. Assessment Year 2009-10:The AO disallowed Rs. 2,89,97,064 under Section 14A, applying Rule 8D. The Tribunal observed that the AO did not record any satisfaction regarding the incorrectness of the assessee's claim before applying Rule 8D, as mandated by the Delhi High Court in CIT vs. Taikisha Engineering India Ltd. The Tribunal reversed the CIT(A)'s order and directed the AO to delete the disallowance.c. Assessment Year 2010-11:The AO disallowed Rs. 13,56,44,550 under Section 14A, applying Rule 8D. Similar to the previous years, the Tribunal noted that the AO did not record satisfaction about the correctness of the assessee's claim before invoking Rule 8D. Following the Delhi High Court's decision in CIT vs. Taikisha Engineering Pvt. Ltd., the Tribunal directed the deletion of the disallowance.3. Addition of Disallowance to Book Profits for Computation of MAT Liability:For all three assessment years, the Tribunal found that the AO's action of adding the disallowance under Section 14A to the book profits for the purpose of computing MAT liability under Section 115JB was not justified. The Tribunal directed the deletion of these additions, aligning with its findings on the improper application of Section 14A.Conclusion:The Tribunal allowed all three appeals filed by the assessee, directing the deletion of the disallowances under Section 14A and the corresponding additions to the book profits for MAT computation. The Tribunal emphasized the necessity of recording satisfaction by the AO before applying Rule 8D and the requirement of incriminating material for assessments under Section 153A.