TaxTMI 
TaxTMI 
2024 (12) TMI 650
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....order dated 16.06.2023 passed by the learned Income Tax Appellate Tribunal (hereafter the ITAT) in ITA No. 4115/Del/2013 and CO No. 244/Del/2013. QUESTION OF LAW 2. The controversy in the present appeal is confined to the claim of the respondent (hereafter the Assessee) in regard to the quantum of disallowance under Section 14A of the Act. This Court had, on 01.05.2024, framed the following question for consideration of this Court in this appeal: "A. Whether on the facts and circumstances of the case and in law, the ITAT was right in restricting the amount of disallowance under Section 14A to INR 7,50,000/- without appreciating that the computation of disallowance was made by the Assessing Officer in accordance with Section 14A of the A....
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....ded a brief analysis of the income earned in comparison to the earlier years. It claimed that during the relevant year, the Assessee had received dividend income of Rs. 8.55 crores, as compared to Rs. 20.75 crores earned in the prior year. It also claimed that during the year in question, its turnover had increased to almost 40%, that is, from Rs. 18.67 crores in the previous year to Rs. 24.66 crores. Thus, whilst the increase in the turnover was around 40%, the exempt income had decreased by almost 60%. 7. Given the nature of income and the Assessee's involvement in maintaining the same, the Assessee suo moto computed the disallowance under Section 14A of the Act to Rs. 7,50,000/-. The breakup of the said expenditure, which was attributab....
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....proceeded to make a disallowance of Rs. 20,00,000/- on an ad hoc basis. The relevant extract of the decision of the learned CIT(A) is set out below: "7. I have carefully considered appellant's submissions and observations of AO in impugned assessment order. To meets ends of justice, in totality of facts and circumstances that assessee has suo motto made disallowance of some of the expenses (Rs. 750,000), same is not found to be defective by AO, the investments made by assessee yields taxable income also, there is no adequate satisfaction of AO before invoking Rule 8D, assessee has emphatically stated all expenses debited in P&L account pertains to manufacturing activities, there is increase in business turnover by 40% and decrease in exem....
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....of the Act being the salary of Directors and expenses attributable to the tax free income earned by assessee. It is also a fact that CIT(A) while deciding the issue has noted that suo moto disallowance made by assessee was not found to the defective by AO and no adequate satisfaction as mandated u/s 14A(2) of the Act was recorded by AO before invoking Rule 8D. Before us, no fallacy in the findings of CIT(A) to the extent of his recording finding that no proper satisfaction was recorded by AO before invoking Rule 8D has been pointed out by Revenue. We are of the view that once the procedure prescribed under Section 14A (2) r.w. Rule 8D has not been followed by Revenue then in that case the Revenue cannot proceed to work out the disallowance ....
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....the expenditure incurred in that regard. It is when an Assessing Officer is not satisfied as to the correctness of the claim made by the assessee, about the expenditure said to have been incurred by him on such income which does not form part of the total income under the Act, he then proceeds to determine the amount of expenditure, by following such method as is prescribed, i.e., Rule 8D of the Rules. 13.1. This methodology, as envisaged under Rule 8D of the Rules, is required to be followed even where the assessee claims that no expenditure was incurred by him concerning income which does not form part of the total income under the Act. 13.2. The approach of the Tribunal has been that, since a disallowance was made, it follows logical....
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....p Investment Ltd. v. Commissioner of Income Tax, New Delhi: (2018) 402 ITR 640, the Supreme Court has held as under: "51. Having regard to the language of Section 14A (2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the share....