2018 (2) TMI 433

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....(A)"} erred in upholding disallowance of Rs.37,22,144/- under section 14A of the Income Tax Act, 1961. 1.1 That on facts and in law the CIT(A) erred in not appreciating that no expenditure was incurred by the assessee in order to earn Dividend Income of Rs.5,13,682/-. 1.2. That on facts and in law the CIT(A) erred in upholding assumption of jurisdiction u/s 14A r/w Rule 8D(2) by the AO. 1.3 That on facts and in law the CIT(A) erred in applying the provisions of Rule 8D(2) of the Income Tax Rules, 1962. That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing." 2. Brief facts of the case are as under. Assessee filed its return of income on 12....

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.... AO by observing as under: "I have perused the written submissions, assessment order and discussed the matter with the AR very carefully. The only dispute of appellant is on disallowance of Rs.37,22,144/- made by AO u/s 14A/Rule-8D of IT Act and Rules respectively. The appellant had received Rs.5,13,682/- as dividends from MFs but AO had disallowed Rs. 37,22,144/- being 1/2% of Average Investment as per third limb of Rule 8D. The AR argued that the appellant had not borrowed any fund during the year for the investments, nor the appellant had paid any interest to anybody for utilising any borrowed fund for fresh investments in shares or mutual funds during the year. Hence he argued that the expenditure in relation to earning exempt ....

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....for earning exempt income and incurring expenses on it. Hence the addition made by the AO is confirmed." 4. Aggrieved by the order of Ld.CIT(A), assessee is in appeal before us. 5. Ld.Counsel submitted that there are no direct expenses which have been incurred by assessee for the purposes of earning exempt income. He submitted that Ld.AO has considered only the investments for the purposes of making disallowance under section 14A read with Rule 8D thereby admitting that there is no expenditure that has been incurred by assessee in order to earn exempt income. He placed reliance upon the working of disallowance under Rule 14A read with Rule 8D by the Ld.AO in the assessment order. Ld.Counsel submitted that Ld.AO has also admitted that ....

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....s salary, postage, Telegraph etc. However there are certain financial charges, bank charges, demat charges that have been debited under Schedule 10 to P&L account. 7.2. We do not agree with arguments advanced by Ld.Counsel regarding satisfaction not being recorded as a requirement before making disallowance under section 14A read with Rule 8D of the Act. In our considered view requirement for recording satisfaction under section 14A(2) comes into play only when suo moto disallowance made by assessee is not acceptable to Ld. AO. 7.3. As assessee has earned dividend income for which no disallowance has been made by assessee in the return of income filed, as per section 14A(1) of the Act, computation has to be adopted as per Rule 8D of t....