2013 (11) TMI 1633

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....ed in restricting the disallowance under section 14A of the Act to Rs. 50,000/- as against disallowance of Rs. 58,64,016/- made by the Assessing Officer. 2. The Assessing Officer while completing the assessments disallowed Rs. 58,64,016/- invoking the provisions of section 14A read with Rule 8D. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) contending that the Assessing Officer has not recorded any satisfaction as to the correctness of the assessee's claim that it had not incurred expenditure more than 2% of the dividend income earned. The appellant contended that it had not made any fresh investment during the year and the dividend was received from unlisted company out of the investment in shares of the com....

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....isions of section 14A read with Rule 8D especially the interest income cannot be subjected to disallowance observing as under:- "4.2 I have carefully considered the facts of the case and the submissions of the Id. AR. I have also gone through the decisions relied on by the AO and the AR. The AO has applied rule 8D for the above disallowance because funds for the appellant came in a common kitty and the appellant could not clearly show the utilization of the funds. The appellant has strongly contested the disallowance made by the AO. From the details of investments filed, it is found that the value of total investments as on 31.3.2008 was Rs. 12,81,09,1102/- and as on 31.3.2009 it was Rs. 4,93,16,401/-, the decrease in the value of investm....

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....evelopers Pvt. Ltd A.Y. 2008-09 wherein the Assessing Officer made a disallowance of Rs. 31 lakhs under section 14A of the Act by applying Rule 8D without recording any satisfaction as to how the assessee's calculation of section 14A disallowance was incorrect. The ITAT held that it is a prerequisite that before invoking Rule 8D, the must record his satisfaction on how the assessee's calculation is incorrect. The AO cannot apply Rule 8D without pointing out any inaccuracy in the method' of apportionment or allocation of expenses. Further, the onus is on the AO to show that expenditure has been incurred by the assessee for earning tax-free income. Without discharging the onus, the AO is not entitled to make an ad hoc disallowance....

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....A for a fair and reasonable exercise of power by the Assessing Officer, conditioned as it is by the requirement of an objective satisfaction, must, therefore, be scrupulously observed. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and recording of reasons by the Assessing Officer in the event he comes to the conclusion that he is not satisfied with the claim of the assessee. " From the above discussion, it transpires that the objective satisfaction of the AO as to the correctness of the assessee's claim was not recorded in the instant case. However, even if Rule 8D cannot be applied, the AO is obliged to ascertain the exp....