2022 (8) TMI 1529 - AT - Income Tax

ITAT accepts assessee's suo moto disallowance under section 14A, rejects AO's Rule 8D application without objective satisfaction

M/s. Nucleus Software Exports Ltd. Versus ACIT, Circle : 18 (2), New Delhi.

ITAT Delhi ruled in favor of the assessee regarding disallowance under section 14A read with Rule 8D. The tribunal held that the AO failed to record ... Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance made by assessee - addition of managerial expenses disallowable under Rule 8D(2)(iii) - assessee contends that there is no objective satisfaction recorded by the AO on the suo moto disallowance made by the assessee before invoking Rule 8D - HELD THAT:- AO has not recorded any objective satisfaction in not accepting suo moto disallowance made by the assessee. Thus, we direct the AO to accept the suo moto disallowance made by the AO in respect of disallowance under Rule 8D(2)(iii) read with section 14A of the Act. Disallowance u/s 14A while computing book profits u/s 115JB - We observe that the issue in appeal is decided by the Special Bench of the Delhi Tribunal in the case of ACIT Vas. Vireet Investment (P.) Ltd [2017 (6) TMI 1124 - ITAT DELHI] where in held that the computation under clause (f) of Explanation (1) to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D of Income Tax Rules, 1962. Issues:Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D for assessment year 2015-16.Analysis:The appeal concerns the disallowance of Rs. 31,14,912 made under section 14A of the Income Tax Act, 1961 read with Rule 8D. The assessee received dividend income during the assessment year and claimed it as exempt. The assessee made a suo moto disallowance of Rs. 35,99,786 under Rule 8D, which included direct expenses and expenses other than interest on borrowing related to investments. The Assessing Officer, however, calculated the disallowance differently, leading to a dispute. The assessee argued that the Assessing Officer did not provide objective satisfaction for not accepting the suo moto disallowance. The Counsel presented detailed workings by the accountant to justify the expenses related to investment activities. The appellate tribunal observed the lack of objective satisfaction by the Assessing Officer and directed acceptance of the suo moto disallowance.Regarding the disallowance under section 14A while computing book profits under section 115JB, the Special Bench of the Delhi Tribunal clarified that the computation should not resort to the Rule 8D computation. Accordingly, the tribunal directed the Assessing Officer to decide the issue in line with the Special Bench's decision. As a result, the appeal was partly allowed, with specific directions provided for each issue.The judgment emphasized the need for the Assessing Officer to record objective satisfaction when not accepting the assessee's suo moto disallowance. It also highlighted the importance of following precedent judgments for consistent application of tax laws. The detailed analysis of expenses related to investments and the application of relevant rules and provisions were crucial in resolving the dispute. The tribunal's decision provided clarity on the computation of disallowances under section 14A and section 115JB, ensuring fair treatment and adherence to legal principles in tax assessments.