TaxTMI 
TaxTMI 
2014 (1) TMI 1035
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....T(A) has erred in confirming the disallowance of Rs.4,20,376/- u/s 14A of the Income Tax Act." 3. At the time of hearing before us, the learned counsel argued at length. He stated that as per Section 14A of the Income-tax Act, 1961, disallowance can be made only if there is some expenditure incurred in relation to earning of exempt income. As per Section 14A(2) and (3), the Assessing Officer has to record the finding that he is not satisfied with the correctness of the claim of the assessee. Then only he can proceed to make the disallowance under Rule 8D(3). That in the case under appeal, the Assessing Officer has not recorded why he is not satisfied with the assessee's claim that no disallowance under Section 14A is required to be made.....
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....Officer has discussed the same at length and thereafter came to the conclusion that disallowance under Section 14A is required to be made. Therefore, the contention of the assessee that no satisfaction is recorded by the Assessing Officer is factually incorrect. He further stated that to avoid the dispute with regard to allocation of the expenditure relating to exempt income, the legislature has provided Rule 8D which is applicable in the year under consideration. Once Rule 8D is applicable, the assessee can point out a mistake, if any, in the working by the Assessing Officer in respect of Rule 8D. However, without pointing out any such mistake, the assessee cannot claim that no disallowance under Section 14A is required to be made. 6. W....
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....ceeding to make the disallowance under Section 14A the Assessing Officer has to record his satisfaction as required by sub-section (2) & (3) of Section 14A, is accepted. 7. Now, we have to examine whether in this case, the satisfaction has been recorded. The Assessing Officer has discussed this issue at pages 3 to 6 of his order. First, the Assessing Officer vide questionnaire dated 23rd September, 2010, asked the assessee why the disallowance under Section 14A read with Rule 8D should not be made. The assessee vide letter dated 15.10.2010 replied as under:- "During the year under assessment the company has not earned any dividend income as well as any exempt income, hence question of disallowance of expenses as per provisions of Sec.....
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....t is held that the circumstances warrant applicable of provisions of Section 14A read with Rule 8D which has retrospective effect. The disallowance as per rule 8D will be as under:." 9. From the above, it is evident that the Assessing Officer after detailed discussion has arrived at the conclusion that disallowance is required to be made under Section 14A read with Rule 8D. Therefore, while on law, we agree with the above decisions of ITAT relied upon by the learned counsel that recording of the satisfaction by the Assessing Officer as envisaged by sub-section (2) & (3) of Section 14A is must before making any disallowance, on facts, those decisions would not be applicable because in the assessee's case, in our opinion, the Assessing Off....
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....ith the assessee in the form of share capital and unsecured loan amounting to Rs. 24,53,32,170/-. The fixed assets is only Rs. 8,000/- and cash and bank balance is only Rs. 2,55,000/-. Major application of funds is in the form of investment at Rs. 23,45,63,810/- and loans and advances at Rs. 1,08,11,435/-. The entire investment of Rs. 23.45 crores is in the form of shares of various unlisted companies, the details of which is given in Schedule-E and the same is reproduced below for ready reference:- SCHEDULE-E Investments Particulars As at 31.03.2008 As at 31.03.2007 Investments in Unlisted & Unquoted Companies. A) Investment in form of shares I) 160,000 Equity Shares of Rs.10/- each 1,920,000.00 1,920,000.00 of Bharat Exp....
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....the funds of the assessee, it would be evident that the company is mainly utilizing its funds for the purpose of investment in the equity shares. When the company is existing mainly for the purpose of investing in shares, it can by no stretch of imagination be said that the expenditure was incurred wholly and exclusively for earning of interest income only in which the investment is of less than 5% of the assessee's funds. Therefore, the only reasonable and logical conclusion can be to allocate the expenditure between the exempt income and non-exempt income. That Rule 8D has been introduced to avoid the dispute with regard to allocation of the expenditure between the exempt income and taxable income. The assessment year under consideration ....