TaxTMI 
TaxTMI 
2017 (8) TMI 845
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....cts of the case extracted from ITA No.5620/Mum/2013 for AY 2009-10 are that the assessee, an individual and advocate by profession, filed her return of income on 31-07-2008 declaring total income of Rs. 27,82,472. The case was selected for scrutiny under CASS and accordingly, statutory notices u/s 143(2) and 142(1) were issued. In response to notices, the authorized representative of the assessee attended from time to time and furnished necessary details, as called for. The assessment was completed u/s 143(3) on 22-11-2010, determining total income at Rs. 34,42,550, interalia making addi t ions towards di f ference on account of AIR informat ion, disallowance of expenditure incurred to earn exempt income u/s 14A of the Act and adhoc disallo....
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....exempt income. The Ld. AR further submitted that the assessee has maintained separate books of account for her profession which is evident from the fact that all expenditure debited to P&L Account are directly attributable to her profession and no part of the expenditure is relatable to earning exempt income. The AO, without recording his satisfaction as to the incorrectness of claim made by the assessee simply invoked the provisions of Rule 8D(2) to disallow on adhoc basis which is incorrect. In support of her argument, she relied upon the decision of Hon'ble Supreme Court in the case of Rajasthan Warehousing Corporation vs CIT 242 ITR 450 (SC) an also the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Hero C....
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....at a satisfaction before invoking the provisions of Rule 8D which is a pre-condition for determination of disallowance, as per the provisions of Rule 8D when there is no expenditure is claimed against earning exempt income. In the absence of any satisfaction as to incorrectness of claim of the expenditure, the AO cannot determine disallowance of expenditure by invoking the provisions of Rule 8D(2). We find force in the argument of the assessee for the reason that the provisions of section 14A(2) makes i t mandatory on the part of the AO to arrive at a satisfaction with regard to the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income under the Act. In this cas....
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....4. Therefore, we are of the view that in the absence of any direct nexus between expenditure claim to the exempt income, the AO cannot invoke the provisions of section 14A r.w.r. 8D(2) to disallow expenditure. Hence, we direct the AO to delete disallowances made u/s 14A r.w.r. 8D, except demat charges of Rs. 574 which is directly incurred in relation to earning exempt income. 7. In the result, appeal of the assessee in ITA No.5620/Mum/2013 is partly allowed. 8. With regard to the other appeal in ITA No.5621/Mum/2013 for AY 200910, the facts are identical to ITA No.5620/Mum/2013, where we have held that disallowance made u/s 14A r.w.r.8D except demat charges which is directly incurred in relation to earning exempt income, should be deleted....