Disallowance under Section 14A requires a recorded reasoned satisfaction before applying the apportionment rule; additions deleted.

The dispute concerns invocation of disallowance for exempt or non-taxable income using the apportionment formula and whether the Assessing Officer recorded the requisite satisfaction before applying the formula; the tribunal applied the principle that a reasoned satisfaction is necessary and found the coordinate-bench decision on identical facts controlling. The tribunal also noted the assessee had, in effect, made a suo-motu disallowance by debiting expenses to capital account rather than the profit and loss account. Applying the precedent, the additions under the apportionment rule were deleted and the appeal allowed for the assessee.

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Issues: Whether the disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 was correctly invoked by the Assessing Officer and whether the additions made thereunder can be sustained in view of the coordinate bench decision in the assessee's own case.

Analysis: The issue turns on whether the Assessing Officer recorded the requisite satisfaction before applying the apportionment formula under Rule 8D and whether the appellant had in effect itself made a suo-motu disallowance by debiting expenses to capital account rather than claiming them in the profit and loss account. The coordinate bench in the assessee's own case examined identical facts, applied the principle that the AO must record satisfaction before invoking Section 14A read with Rule 8D, and relied on the Supreme Court authority emphasising the necessity of such satisfaction. Having regard to the identical factual matrix and the principle of judicial discipline, the coordinate bench's decision deleting the Section 14A addition is applied to the present appeal.

Conclusion: The additions made by the Assessing Officer under Section 14A read with Rule 8D are deleted and the appeal is allowed in favour of the assessee.

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