Tribunal allows appeal, deletes disallowance under Section 14A with Rule 8D. Assessing Officer must justify no expenditure claim.

The Tribunal set aside the Commissioner of Income Tax (Appeals) order and deleted the disallowance made under Section 14A read with Rule 8D. The appeal by the assessee was allowed, emphasizing the requirement for the Assessing Officer to record satisfaction regarding the correctness of the claim of no expenditure being incurred for earning exempt income.

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Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
2. Application of Rule 8D when actual expenses are available.
3. Disallowance of DEMAT charges under Rule 8D(2)(i).
4. Partial upholding of the Assessing Officer's disallowance by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962:
The assessee challenged the disallowance of Rs. 7,58,612/- made by the DCIT under Section 14A read with Rule 8D on the grounds that the reasons given by the Assessing Officer (AO) were insufficient and contrary to the facts and evidence on record. The AO computed the disallowance under Rule 8D(2)(iii) despite the assessee's explanation that all investments were made from internal accruals without any borrowings, and no administrative expenses were incurred for earning the dividend income. The AO's reliance on the decision of the Hon'ble Bombay High Court in Godrej Boyce & Mfg. Co. Ltd. vs. ACIT was noted.

2. Application of Rule 8D when actual expenses are available:
The assessee argued that Rule 8D should only be applied when actual expenses are not available. In this case, the actual expenses incurred were available, and thus, the formula in Rule 8D should not be applied merely because it results in a higher disallowance. The AO, however, did not accept this explanation and proceeded with the disallowance under Rule 8D(2)(iii).

3. Disallowance of DEMAT charges under Rule 8D(2)(i):
The assessee had suo motu made a disallowance of Rs. 12,436/- on account of DEMAT charges, which is covered by Rule 8D(2)(i). Despite this, the AO included this amount in the overall disallowance under Section 14A read with Rule 8D, leading to the assessee's contention that this was incorrect as the amount had already been disallowed while computing taxable income.

4. Partial upholding of the Assessing Officer's disallowance by the Commissioner of Income Tax (Appeals):
The CIT(A) partly allowed the appeal, directing the AO to rework the average value of investment for computing the disallowance under Rule 8D(2)(iii) after excluding the investment in IDFC Super Saver Income Fund-Growth Plan, which does not earn tax-free income. The CIT(A) found merit in the appellant's claim regarding this specific investment.

Tribunal's Observations and Decision:
The Tribunal referred to its earlier decisions in the assessee's own cases for AY 2005-06, AY 2010-11, and AY 2011-12, where it had held that the AO must record satisfaction regarding the correctness of the assessee's claim that no expenditure was incurred for earning exempt income. The Tribunal noted that the AO had failed to record such satisfaction in the present case and had made the disallowance as a mere routine without considering the merits of the assessee's submissions. The Tribunal emphasized the requirement of recording satisfaction as per the judgment of the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT & Anr.

Conclusion:
The Tribunal set aside the order of the CIT(A) and deleted the disallowance made under Section 14A read with Rule 8D. The appeal filed by the assessee was allowed, and the order was pronounced in the open Court on 27/01/2021.

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