AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1481
X X X X Extracts X X X X
X X X X Extracts X X X X
....y making disallowance u/s 14A of Rs. 147,63,92,907/- and disallowance of interest u/s 201(1A) at Rs. 1,68,926/-. 3. In first appeal, the ld. CIT(A) dismissed the appeal of the assessee against which the present appeal is preferred by the assessee before the Tribunal. 4. The assessee has raised the following grounds of appeal:- "1. On the facts and circumstances of the case, the order passed by the learned Commissioner Income Tax (Appeals), National Faceless Appeal Centre ((CIT(A), NFAC) is bad, both in the eye of law and on the facts. 2. (i) On the facts and circumstances of the case the learned CIT(A), NFAC has erred both on facts and in law in confirming the disallowance of Rs. 147,63,92,907/-made by the AO under section 14A read with rule 8D of the Income Tax Rules. (ii) That the above said disallowance has been confirmed despite the fact that the same has been made by the AO without recording any satisfaction as to having regard to the accounts of the assessee how suo-moto disallowance of Rs. 45,87,471/- made by the assessee under Section 14A is not correct. (iii) That the above said disallowance has been confirmed rejecting the detailed submissions and explanation gi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eliance on the judgement of coordinate bench of ITAT, Mumbai in the case of DCIT Vs. Reliance Industries Ltd. reported in 2023(10) TMI 1313 (ITAT Mumbai) and further in the case of Trent Ltd. Vs. DCIT in ITA No. 4074/Mum/2024. Ld. AR also filed a detailed written submission in this regard where the observations made by AO and ld. CIT(A) are rebutted, the written submission so filed is considered and placed on record. It is alternatively prayed that only those investments which yielded exempt income should be considered for making computation under rule 8D of the Income Tax Rules for the purpose of making disallowance u/s 14A of the Act. 7. On the other hand, ld. CIT-DR vehemently supported the order of authorities and submits that once the provisions of section 14A read with rule 8D of the I.T. Rules, 1962 are invoked, the amount of disallowance is to be computed in terms of the formula provided in rule 8D according to which the cumulative of the amount of expenditure directly relating the income which does not form part of total income plus 1% of average value of monthly investment is to be taken as the gross amount of disallowance u/s 14A of the Act. The ld. CIT-DR submits that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n relation to income not includible in total income. 14A. (1) Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The 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 this section shall empower the Assessing Officer either to reassess under section 147 or pass an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 average 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." 14. From the perusal of the provision of rule 8D sub rule (1), the AO should record his dissatisfaction about the correctness of the claim of expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re involved, no disallowance u/s 14A should be made. Further in some pronouncements it is held that when the AO has not recorded the satisfaction on the claim of the assessee, provision of section 14A could not be invoked. However, as discussed above, in the present case, the AO has recorded the satisfaction of correctness of the claim of the assessee and further seen that the assessee itself has made the disallowance u/s 14A by considering those expenses which are directly relatable to earn such exempt income, therefore, the ratio laid down in the judicial pronouncements are not relatable to the facts of the present case. 17. Further, from the perusal of the facts and arguments advanced by both the parties, we find that it is an admitted position that out of total investment of Rs. 26400.88 crores, only investments of Rs. 2437.37 crores earned exempt income of Rs. 210.4 crores as dividend. Once it is established that the AO is not satisfied with the claim of the assessee that the expenses shown under suo-moto disallowance are sufficient and correct with respect to the income earned not forming part of the total taxable income, the provisions of sub rule (2) of rule 8D come into p....