TaxTMI 
TaxTMI 
2020 (6) TMI 26
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.... Act, 1961 (hereinafter referred to as the "Act") read with Rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as the "Rules"). 3. Briefly stated facts as observed by the AO are that the assessee had received exempted income by way of dividend. According to AO, the assessee has invested money in shares i.e. non current investment to the tune of Rs. 42,98,45,733/- during the FY 2011-12. And the assessee has debited only demat charges of Rs. 33,145/- and claimed that no other expenditure was incurred by it for earning this dividend income. However, the AO after asking for explanation remarked that he did not accept the claim of assessee and applied Rule 8D and computed the disallowance to the extent of Rs. 20,72,749/-. Aggrieve....
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....4A read with Rule 8D which is not acceptable. Whereas in tax audit report auditor has disallowed the demat charges." 5. Drawing our attention to this reason recorded by AO the ld. AR submitted that the AO had rejected the contention of the assessee without providing any reason for such rejection. According to him, the only reason for disallowance u/s. 14A was that the auditor of the assessee in the tax audit report had disallowed demat charges of Rs. 33,145/- u/s. 14A which was never incurred for earning dividend income. The ld. AR submitted that the AO has neither recorded any nexus between the exempt income and the expenditure so disallowed by him nor recorded his dissatisfaction with reference to the claim of the assessee tha....
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.... Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : [Provided that nothing contained in t....
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.... accounts maintained by the assessee finds it to be correct, then he cannot resort to apply Rule 8D. In my opinion, it is clear that the disallowance as per Rule 8D is not automatic and it can be resorted to only if the AO having regard to the accounts of the assessee records his dissatisfaction as to the claim of expenses incurred by the assessee for earning the exempt income. In the instant case the AO while making the addition u/s. 14A had made no effort to examine the veracity of the claim made by the assessee company that it did not incurr any expenditure other than the demat charges suo-moto disallowed by it, which also assessee contests that the demat charges not incurred while earning the exempt income. The ld. CIT(A) also did not m....
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....d for explanation from the AR of the assessee, which was submitted to him. However the AO has not given any reason why he is satisfied with the explanation rendered by the assessee and has simply remarked that he is not accepting the claim of assessee that it did not incur any expenditure for earning exempt income. It has to be kept in mind that reason is the soul of any order and here it is absent. A bald assertion by AO that he is not accepting the assessee's claim is arbitrary and so cannot be justified. The AO has not applied his mind while dealing with the issue and his action smacks of arbitrariness and therefore his action cannot be sustained. And since the ld. CIT(A)'s action of non adjudication of the legal issue raised by the l....