TaxTMI 
TaxTMI 
2021 (8) TMI 214
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....the assessee and its objections if any, should be obtained and since it is not fulfilled in the assessee's case, the AO's action is legally not tenable. 2.2 The ld.CIT(A) ought to have appreciated that there are no specific provisions in the Income Tax Act mandating the Assessing officer to record his satisfaction separately and convey the same to the assessee for obtaining objection of the assessee, if any. 2.3 The ld.CIT(A) ought to have appreciated that in the assessment order, the AC has quoted the provisions of section 14A (2) of the IT Act, which also includes mention of satisfaction and that after discussing the said provisions, the AO went on to make disallowance u/s 14A as per Rule 8D and as such, it the ld.CIT(A) ought to have appreciated that the AO's satisfaction is embedded in the Assessment order itself. 2.4 The ld.CIT(A) is not justified in holding the action of the AO in invoking the provisions of sec.14A read with Rule 8D as legally not tenable when the assessee itself, in its letter dated 12.03.2014 filed during the course of assessment proceedings, worked out disallowance of Rs. 60,073/- u/s 14A of the IT Act and offered the same for taxation for A.Y 2011-1....
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....(A) ought to have confirmed the disallowance made by the AO in the assessment order for AY 2011-12 passed u/s 143(3) of the IT Act, I96I in the assessee's case. 4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored." 3. Brief facts of the case are that the assessee company is in the business of manufacturing and trading of chemicals and generation of power has filed its return of income for assessment year 2011-12 on 30.09.2011. The assessee has subsequently filed revised return on 28.08.2012 declaring total income of Rs. 21,81,79,159/- under normal provisions of the Act, and book profit of Rs. 29,11,28,921/-, as per section 115JB of the Income Tax Act, 1961. The case has been selected for scrutiny and assessment has been completed u/s.143(3) of the I.T. Act, 1961, on 27.03.2014 and determined total income of Rs. 24,68,99,470/-, by inter-alia, making additions towards disallowance u/s.14A for Rs. 2,55,22,111/- and disallowance of commission paid to Managing Director u/s.36(1)(ii) of the Income Tax Act,....
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....me up for our consideration from ground no.2 of revenue appeal is disallowance of expenditure in relation to exempt income u/s.14A of the Income Tax Act, 1961. The facts with regard to impugned dispute are that the assessee has earned dividend income of Rs. 6,99,349/-, which was claimed exempt u/s.10(34) of the Act. The assessee had also disallowed a sum of Rs. 60,073/- as expenditure incurred towards earning exempt income. The Assessing Officer has determined disallowance of Rs. 2,55,22,111/- by invoking Rule 8D of Income Tax Rules, 1962. 7. The learned DR submitted that the learned CIT(A) has erred in deleting disallowance computed by the Assessing Officer u/s.14A r.w. Rule 8D of Income Tax Rules, 1962, without appreciating fact that the Assessing Officer has recorded satisfaction as required under sub-section (2) of section 14A of the Act. The DR further submitted that disallowances contemplated u/s.14A of the Act, shall be computed in accordance with prescribed method provided under Rule 8D and hence, there is no error in the computation of disallowances made by the Assessing Officer. However, the learned CIT(A), without assigning any reason has simply deleted additions made b....
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....vest Ltd. vs.CIT (2015) 378 ITR 33 has considered an identical issue and held that disallowances contemplated u/s.14A cannot exceed exempt income earned for the year under consideration. A similar view has been taken by the Hon'ble High Court of Delhi in the case of Joint Investments Pvt .Ltd vs. CIT reported in 372 ITR 694, where it was held that disallowances contemplated u/s.14A cannot swallow entire exempt income for the year under consideration. In this case, the assessee has earned dividend income of Rs. 6,99,349/-, whereas the Assessing Officer has computed disallowance of Rs. 6,99,349/- . Therefore, we are of the considered view that disallowance computed by the Assessing Officer is disproportionate and contrary to the settled principle of law by various High Courts including the Hon'ble Delhi High Court. Hence, we direct the Assessing Officer to restrict disallowances contemplated u/s.14A read with Rule 8D(2)(iii) of the Income Tax Rules, 1962, to the extent of exempt income earned for the year. 11. The next issue that came up for our consideration from ground no.3 of revenue appeal is disallowance of commission paid to Managing Director u/s.36(1)(ii) of the Act. The Ass....