TaxTMI 
TaxTMI 
2020 (1) TMI 614
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....l the Tribunal in ITA No. 2705/MUM/2013 dated 19.01.2015 restored the issue of disallowance made u/s. 14A r.w Rule 8D(2)(ii) of I.T. Rules to the file of the Assessing Officer with a direction to verify the correctness of the claim of the assessee as the assessee itself made suomoto disallowance of Rs..1,16,36,172/- u/s. 14A of the Act while computing its income. In the consequential assessment made by the Assessing Officer u/s. 143(3) r.w.s. 254 of the Act dated 05.03.2016 the Assessing Officer restricted the disallowance u/s. 14A of the Act to Rs..37,89,019/- as against Rs..60,01,670/- made in the original assessment, over and above the suomoto disallowance of Rs..1,16,36,172/- made by the assessee. In the consequential assessment proceed....
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....ce u/s. 14A to the suomoto disallowance made by the assessee. 4. Ld. DR vehemently supported the orders of the authorities below. 5. We have heard the rival submissions and perused the orders of the authorities below and the decision of the Coordinate Bench of the Tribunal in assessee's own case. We find that, more or less an identical issue has come up before the Tribunal in assessee's own case for the A.Y. 2011-12 in ITA No. 6191/MUM/2016 dated 25.07.2018 and the Tribunal restricted the disallowance u/s. 14A to the extent of suomoto disallowance made by the assessee observing as under: - "5. The CIT(A), after considering relevant submissions of the assessee and also by following the decision of ITAT, Mumbai Benches ....
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....to the earning of exempt income. The disallowance u/s 14A (1) can only be triggered, once the conditions under sub section (2) are satisfied. To work out the disallowance u/r 8-D, the A.O. has to first examine the accounts of the assessee and the correctness of the claim and then, if having regard to such accounts and the claim he is not satisfied with either the correctness of the claim made by the assessee or made a claim that no expenditure at all has been incurred for the purpose of earning the exempt income, then only he can resort to Rule 8-D. In the present case, we find that the A.O. has straightaway proceeded to apply Rule 8-D for the purpose of disallowance u/s 14A without satisfying or complying with the mandatory requirement of ....
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.... be deleted. 7. On the other hand, the Ld.DR fairly accepted that the issue is covered in favour of the assessee by the decision of the ITAT for earlier assessment year. 8. We have heard both the parties and perused the material available on record. The issue of disallowance of expenditure incurred in relation to exempt income u/s 14A has been considered by the ITAT. in assessee's own case for AY 2012-13 in ITA No.6414/Mum/2016 and after considering relevant facts deleted further disallowance made by the AO over and above suo moto disallowance made by the assessee towards expenditure incurred in relation to exempt income u/s 14A of the Act. The relevant portion of the order is extracted below:- "8. We have con....
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.... is not a matter of dispute between rival parties. The total disallowance of expenditure of Rs. 5,44,975/- u/s 14A is also certified by tax-auditors in their tax audit report to be correct disallowance of expenditure u/s 14A incurred in relation to earning of exempt income (refer page 63 and 75/pb). We have observed from the perusal of the Balance sheet that the assessee has investments in properties as well as in shares, debentures, partnership firms, mutual funds, and income is arising from these activities. The AO has not recorded any satisfaction u/s 14A(2) as to why disallowance offered by the assessee suo motu voluntarily is not a correct disallowance u/s 14A and the same needs to be discarded . The AO mechanically applied Rule 8D and....
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....asoning for discarding the working submitted by the assessee as to disallowance of expenditure of Rs. 5,44,975/- u/s 14A. The AO mechanically applied Rule 8D and made disallowance to the tune of Rs. 2.14 crores without understanding that Section 14A clearly speaks of disallowance of the expenditure incurred by the assessee in relation to earning of an exempt income and no notional expenditure can be disallowed u/s 14A which had not even been incurred at all by the assessee. Also there is no allegation or incriminating material on record that the assessee incurred any expenditure out of books of accounts which was not recorded in books of accounts warranting any additions to income to bring to tax the said unrecorded expenditure. Un....