TaxTMI 
TaxTMI 
2024 (4) TMI 407
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....stment, Rs. 985 Lakhs from mutual funds and Rs. 2065 Lakhs under the head 'Capital Gains'. The AO also observed that Assessee had claimed above dividends aggregating to Rs. 11,98,44,042/- as exempt under Section 10(34) of the Act besides Rs. 12,15,13,871/- out of the capital gains under Section 10(38) of the Act. The AO also observed from Schedule 16 forming part of the P&L A/c that Assessee has claimed expenditure of Rs. 94,00,00,000/- on account of interest expenses. Subsequently, Assessee was called upon to show cause as to why expenditure should not be disallowed under Section 14A of the Act read with Rule 8D of the Income Tax Rules ("IT Rules"). Assessee's reply, was not accepted by the AO. The AO recomputed the disallowance by applying Rule 8D of the IT Rules at Rs. 18,46,00,000/- and an assessment order dated 26th October 2010 under Section 143(3) of the Act came to be passed. 3. Being aggrieved, Assessee filed an appeal before the Commissioner of Income Tax (Appeals), Bombay [CIT(A)]. By an order dated 9th December 2011, Assessee's appeal was allowed by the CIT(A). The CIT(A) deleted the disallowance made by the AO holding that the AO has not recorded his findings about ....
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....1 read with Rule 8B of the Income Tax Rules, by holding that the Assessing Officer applied Rule 8D without recording satisfaction with reference to the correctness of the claim of the assessee in respect of the expenditure incurred in relation to exempt income in form of dividend and long term capital gain, when the Assessing Officer's satisfaction is discernible from the discussion made in the assessment order?" 6. Mr. Suresh Kumar submitted that the AO has in fact recorded in the assessment order that Assessee's explanation was not acceptable. We have examined the assessment order where the AO stated as under: "It is pertinent to note that the assessee in his business and the loans taken are the purpose for investing in the shares and financing activities of the assessee. The assessee's explanation is not acceptable." 7. We agree with the finding of the CIT(A) and the ITAT that though the AO has stated that Assessee's explanation is not acceptable, he has not given reasons why it was not acceptable to him. Subsection (2) of Section 14A and Rule 8D provides that if the Assessing Officer is not satisfied with the correctness of the claim in respect of expenditure mad....
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....s of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.] 6. In sub-Section (2) of Section 14A and Rule 8D it is provided that if the Assessing Officer is not satisfied w....
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.... However, to avoid proceedings, a suo motu disallowance was made. The Assessing Officer did not in any manner reject this explanation of the assessee but merely proceeded to make disallowance by invoking Section 14A and applied Rule 8D which the Tribunal correctly reversed." Paragraph 9 of Bombay Stock Exchange (Supra) reads as under: "9. We note that it is evident from the extracted part of the assessment order referred to hereinabove that the Assessing Officer has come to the conclusion that the disallowance claimed by the Respondent was not consistent with Rule 8D of the said Rules. It is only in view of the disallowances not being worked out as per Rule 8D of the Rules, that the Assessing Officer is not satisfied with the disallowance offered by the Respondent. This, to our mind, is putting the cart before the horse. The Assessing Officer must first record a conclusion that having regard to the accounts of the assessee, he is not satisfied with the disallowance offered by the Respondent in terms of section 14A(2) of the Act. It only on being dissatisfied with the above, does Rule 8D of the Rules can be invoked to compute the disallowance." Paragraph....
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.... is to be applied in the present case based on the various discussions and findings of the AO in the original assessment order passed. However, since the amount worked out by the assessee is higher, the same has been considered for disallowance. 11. The Assessing Officer has not expressed his satisfaction in the way it should have been. The Assessing Officer does not say he is not satisfied and why he was not satisfied. There are no reasons given. Moreover, Ms Jain submitted that the Assessing Officer, in paragraph 5.2 of the impugned order quoted above, has relied upon some discussions and findings of some original assessment order passed, but the first assessment order ever to have been passed is the impugned order dated 28th March 2013 where the Assessing Officer has reduced the disallowance. Therefore, it only indicates clear non-application of mind by the Assessing Officer. This was not controverted. We would agree with the submissions of Ms Jain since CIT(A) in his order dated 9th December 2014 records "Though not mentioned in assessment order, admittedly a notice u/s 143(2) was issued and assessment proceedings were pending on the date of search which came to be aba....