TaxTMI 
TaxTMI 
2024 (5) TMI 491
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....A of the Act for both these years. 05. As the facts and circumstances in both the appeals are identical, we set out the facts for A.Y. 2014-15. The assessee filed its return of income on 29th November, 2014 at Rs. 55,31,90,420/- from its business of running hotels. The learned Assessing Officer selected the case for scrutiny and held that assessee has made huge investment of Rs. 169 crores and has offered suo moto disallowance of Rs. 24,23,717/- under Section 14A of the Act. The assessee has earned dividend income from domestic companies of Rs. 365.92 lacs. The assessee has computed administration cost and certain other charges amounting to Rs. 24,23,717/- as an amount disallowable under Section 14A of the Act. The learned Assessing Officer applied the provision of Rule 8D of the IT Rules u/s 14A of The Act and computed the disallowance of Rs. 57,96,654/-. As assessee has offered suo moto disallowance of Rs. 24.23,717/-, therefore, further disallowance of Rs. 37,30,672/- was made. Consequently, the assessment order under Section 143(3) of the Act was passed on 24th November, 2016, determining the total income of the assessee at Rs. 55,69,21,100/-. 06. Assessee approached the ....
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....ncome earned during the year those investments are also required to be taken in to computation of disallowance. Therefore, there is no infirmity in the orders of lower authorities. 011. We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that For AY 2014-15 , assessee has earned exempt income of Rs. 365.92 lacs being exempt income. The assessee has computed a suo moto disallowance under Section 14A of the Act of Rs. 20,65,982/- of administrative cost and further, Rs. 3652/- as Demat charges. With respect to the disallowance of Rs. 20,65,982/-, the assessee has considered percentage wise disallowance of total finance department overheads and salaries etc. of Rs. 3.72 crores. To this expenditure the assessee has applied certain percentage to each of the expenditure and computed the disallowance of Rs. 20,65,982/-. The learned Assessing Officer did not mention any reason to state that why he has not agreeing to disallowances computed by the assessee. 012. Provision of section 14 A (2) provides that The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of....
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....ure 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 this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Rule 8D of the said Rules that was inserted w.e.f. 24th March 2008 by the Income Tax (5th Amendment Rules) 2008, reads as under: "8D.-(1) Where the Assessing Officer, having regard to the accounts 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 suc....
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....unal, however, deleted the disallowance on the ground that the Assessing Officer had not recorded the necessary satisfaction for not accepting the disallowance offered by the assessee. As is well the amount of expenditure incurred in relation to income which is examined for tax if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The satisfaction of the Assessing Officer about the correctness of the expenditure offered for disallowance by the assessee therefore is a pre-condition. In the present case, we have perused the order of assessment in which the Assessing Officer had called assessee to justify the limited disallowances voluntarily offered. The assessee made detailed representation upon the inter alia pointed out that the assessee had not made any expenditure in the nature of administrative expenses. 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) ....
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.... and the ITAT has rightly deleted the disallowance made by the AO u/s 14A r.w Rule 8D. Consequently we hold that, the interest expenditure cannot be disallowed u/s 14A r.w. Rule 8D(2) (ii) under any circumstances." 10. Now let us examine the assessment order to see whether this mandatory conclusion that the Assessing Officer is not satisfied with the disallowance made by the assessee, has been arrived at. The only place where the Assessing Officer has come to his findings is at paragraph 5.2 of the assessment order, which reads as under: 5.2. The said submission has been considered. In the assessment order passed u/s 143(3) dated 20.10.2010, the AO has worked out the disallowance u/s 14A as per Rule 8D at Rs. 29,66,81,836/-. The assessee has also furnished working u/Rule 8D (though under protest) which amounts to Rs. 44,03,33,135/-. Rule 8D 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 ....
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.... as not correct on examination of accounts of the assessee. Thus, The learned Assessing Officer has failed to record his satisfaction as provided under that section. Therefore, the issue is squarely covered by the decision of the Hon'ble Bombay High Court in case of Tata Capital Ltd. (supra). In this case, that the learned Assessing Officer has not recorded any satisfaction about the correctness of the claim of the assessee about disallowance offered of Rs. 20,65,982/-. Thus, without recording of the satisfaction about the correctness of the claim of the assessee, the learned Assessing Officer does not have any authority to compute the disallowance by application of Rule 8D. The learned CIT (A) is also incorrect in holding that the learned Assessing Officer has recorded any satisfaction as provided under Section 14A (2) of the Act. In view of this, we hold that the disallowance made by the learned Assessing Officer confirmed by the learned CIT (A) is not correct. Accordingly, we reverse the orders of the lower authorities and allow the ground no. 2 of the appeal, following the decision of the Hon'ble Bombay High Court in case of Tata Capital ltd. (supra) and direct to delet....