TaxTMI 
TaxTMI 
2016 (12) TMI 753
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....ut of motor car expenses Rs. 29,999/- (iii) Out of Depreciation on motor car Rs. 1,08,296/- (iv) Out of Telephone expenses Rs. 56,800/- (v) Under section 14A r.w. Rule 8D Rs. 5,67,458 2.2 Aggrieved by the order of assessment dated 31.12.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT(A)-3, Mumbai who dismissed the assessee's appeal vide the impugned order dated 21.10.2013." 3. The assessee has preferred this appeal, which is directed against the order of the CIT(A)-3, Mumbai dated 21.10.2013 for A.Y. 2010-11, raising the following grounds:- "1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in upholding the disallowance of a sum of Rs. 5,67,458/- under the provisions of section 14A of the Income Tax Act, 1961. (a) Without considering the fact that the said figure of disallowance included interest paid of Rs. 181,607/- on purchase of motor car and for balance expenses of Rs. 385,856/-, there is no proximate cause for disallowance. (b) Without considering the fact that the appellant's portfolio was managed by ABN Amro and Barclays Bank for which no ch....
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....ed that in the light of the averments put forth in para 4.1 (supra), it is amply clear that the AO made the said disallowance under section 14A r.w. Rule 8D not only on the factually incorrect premise that the assessee offered the said disallowance but also as the disallowances made were without any application of mind as the same were not warranted, being made on a wrong assumption of facts/items and without addressing the factual and legal submissions put forth by the assessee. 4.1.3 The assessee contends that even on appeal, the learned CIT(A) mechanically confirmed the disallowance under section 14A r.w. Rule 8D made by the AO without addressing the assessee's contentions of the judicial pronouncements cited. 4.1.4 In written submission placed before us in the course of hearing it was contended that the disallowance under section 14A r.w. Rule 8D is not automatic. In order to invoke Rule 8D, the AO firstly in accordance with the procedure laid down in section 14A of the Act, it is a prerequisite that he has to record his satisfaction having regard to the accounts of the assessee that he is not satisfied with the correctness of the assessee's claim that no expendit....
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....r section 14A of 5,67,458/-. Firstly, under Rule 8D(2)(ii) disallowance of interest of Rs. 2,36,417/- made, was in respect of interest on car loan from ICICI Bank which had no nexus with the investments made by the assessee. Further; (ii) the assessee's question as to whether the disallowance under Rule 8D(2)(ii) of 3,85,856/- administrative expenses is called for, when the AO has separately disallowed expenditure of 2,49,036/- claimed on account of motor car expenses, depreciation thereon, telephone expenses and business promotion expenses has not been addressed in the impugned order of learned CIT(A). All these facts, in our considered view, established an abject lack of application of mind, non consideration of the assessee's submissions, factually incorrect assumptions, non rendering of any cogent reasons for his action and abject failure on the part of the AO to follow the procedure mandated by the provisions of section 14A of the Act in order to trigger the invocation of the provisions of Rule 8D of the I.T. Rules, 1962 before making any disallowance thereunder. The impugned order of the learned CIT(A) too, in our view, is a non speaking order. 4.3.2 Section 14A of....
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....not been controverted before us by the Revenue. As mentioned by us earlier; even the breakup of the disallowance under Rule 8D(2)(ii) reveals a distinct lack of application of mind and appreciation of facts as it appears to be made on interest paid on car loan from ICICI Bank, which has no nexus with the investments made by the assessee; and under Rule 8D(2)(iii) of administrative expenses, which the assessee challenged before the learned CIT(A) on the ground that whether such disallowance was called for when separate disallowances were made by the AO from out of expenditure claimed as telephone charges, motor car expenses and depreciation thereof, business promotion, etc. It appears to us that the AO proceeded to invoke Rule 8D and make the disallowance thereunder on the premise that disallowance thereunder is automatic, irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income; and the learned CIT(A) has upheld the same. In our considered view, for making any disallowance under section 14A of the Act, the AO firstly would have to examine the correctness of otherwise of the assessee's claim of having incurred no ex....