Assessee wins as tax officer failed to record proper satisfaction for rejecting suo moto disallowance under Section 14A Rule 8D

ITAT Delhi ruled in favor of the assessee regarding disallowance under section 14A read with Rule 8D. The tribunal found that the AO failed to properly record satisfaction for rejecting the assessee's suo moto disallowance, making any further disallowance unsustainable. Following precedent from Vireet Investments, the tribunal held that disallowance under Rule 8D cannot be made while computing book profits under section 115JB. The revenue's appeal was rejected, and the assessee's grounds were allowed.

---

---

Issues:
The issues involved in this judgment are related to the disallowance under section 14A of the Income Tax Act, specifically concerning the satisfaction recorded by the Assessing Officer, computation of disallowance, and the basis for enhancing the addition to the extent of exempt income earned.

Disallowance under Section 14A:
The Assessee raised revised grounds of appeal challenging the additional disallowance under section 14A made by the CIT(A) over and above the suo moto disallowance. The Counsel for the Assessee argued that the Assessing Officer did not record proper satisfaction for invoking section 14A before making the disallowance under Rule 8D. The Tribunal referred to a previous case where it was held that without proper satisfaction recorded, no disallowance under Rule 8D r.w.s. 14A could be made. The Tribunal found that there was no proper recording of satisfaction by the AO for rejecting the suo moto disallowance made by the Assessee, and thus allowed the grounds raised by the Assessee. Consequently, the disallowance made under Rule 8D read with section 14A was not warranted.

Disallowance under Section 14A while Computing Book Profits:
The Revenue's appeal regarding disallowance under section 14A while computing the provisions u/s 115JB of the Act was also addressed. The Tribunal held that there cannot be any disallowance under Rule 8D read with 14A of the Act in terms of clause (f) of Explanation 1 to section 115JB. As the Assessee had already made a suo moto disallowance, no further disallowance under section 14A read with Rule 8D was warranted while computing the book profits u/s 115JB of the Act. Therefore, the ground raised by the Revenue in this regard was rejected.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the Assessee and dismissed the appeal of the Revenue, emphasizing that the disallowance under section 14A was not justified due to the lack of proper satisfaction recorded by the Assessing Officer. The judgment was pronounced on 30/04/2024.

---