TaxTMI 
TaxTMI 
2025 (8) TMI 969
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....during the year for making investment, as investments were made in earlier years and also did not incur any expenditure for earning exempt income as dividends were declared by mutual funds on a daily basis and the same was utilised for allotting additional units every day without any effort by the Appellant. iii) Commissioner of Income Tax (Appeals) further ought to have seen that the Appellant had already disallowed Rs. 5,000/- u/s. 14A in its computation of income towards the accounting work for recording the transactions but had not incurred any other expenditure. Hence, Commissioner of Income Tax (Appeals) is not justified in confirming the disallowance of Rs. 10,67,172/- u/s. 14A made by the Assessing Officer. 3. For all of the above and such other grounds as may be urged at the time of hearing it is prayed that the appeal be allowed and suitable directions be issued to the Assessing Officer to delete disallowance of Rs. 10,67,172/- made u/s. 14A in the Asst. Order in the interest of justice." 3. The assessee has filed a petition for admission of additional ground by filing additional ground of appeal. The additional ground raised by the assessee before th....
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....sions of sec.14A of the Act, worked-out the disallowance contemplated u/sec.14A by applying the provisions of Rule 8D of I.T. Rules, 1962 and determined disallowance of Rs. 10,67,172/- @ 1% of annual average of monthly average of investments by holding that, the assessee has not maintained separate books of accounts for investments made in mutual funds and since, there is no separate expenditure recorded by the assessee towards investment activity, except debiting the amount of Rs. 5,000/-, for which, there is no basis, the Assessing Officer observed that the assessee has failed to apportion administrative/establishment expenses for investment and business activity and in absence of relevant basis for making ad-hoc disallowance of Rs. 5,000/-, the Assessing Officer rejected the explanation of assessee and computed the disallowance at Rs. 10,67,172/- under section 14A read with Rule 8D of I.T. Rules, 1962. 6. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the CIT(A), the assessee contended that, the assessee has made investment in mutual funds, for which, it has not incurred any specific expenditure. Further, the investment in m....
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....ed any expenditure, has made only ad-hoc disallowance of Rs. 5,000/- under section 14A of the Act. The Assessing Officer and the learned CIT(A) without considering the relevant facts, has simply made disallowance under section 14A read with Rule 8D of I.T. Rules, 1962 and made addition of Rs. 10,67,172/- 8.1. Learned Counsel for the Assessee further referring to the additional grounds of appeal filed by the assessee submitted that, the disallowance made by the Assessing Officer under section 14A read with Rule 8D of I.T. Rules, 1962, cannot be sustained because, the Assessing Officer has failed to record satisfaction as required under section 14A(2) of the Act with reference to the books of accounts that, suo motu disallowance by assessee is not correct. In absence of any satisfaction, the disallowance made by the Assessing Officer under section 14A read with Rule 8D of I.T. Rules, 1962 cannot be upheld. In this regard, he relied upon certain judicial precedents i.e., decision of Hon'ble Bombay High Court in the case of PCIT vs., Tata Capital Ltd., [2024] 161 taxmann.com 557 (Bom.); decision of Hon'ble Madras High Court in the case of Marg Ltd., vs., CIT [2020] 120 taxmann.com 8....
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....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. As per section 14A(3), 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 farm part of the total income under this Act. A plain reading of the section 14A(2) of the Act, makes it very clear that, before computing disallowance under section 14A read with Rule 8D of I.T. Rules, 1962, the Assessing Officer shall arrive at a satisfaction that, the claim of the assessee that, no expenditure has been incurred or suo motu disallowance made under section 14A is not correct, having regard to the books of accounts of the assessee for the relevant assessment year. This principle is also supported by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd., vs., CIT (2018) 402 ITR 640 (SC) where the Hon'bl....
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....bay High Court came to the conclusion that in absence of relevant satisfaction as required under section 14A(2) of the Act, the computation of disallowance under section 14A read with Rule 8D of I.T. Rules, 1962, is not in accordance with law and disallowance under section 14A of the Act, cannot be upheld. In the present case, we have already noted in earlier part of this order that, the Assessing Officer has recorded satisfaction in light of arguments of assessee and suo motu disallowance made under section 14A read with Rule 8D of I.T. Rules, 1962 on the basis of total expenditure debited to P & L A/c and arrived at a satisfaction that, the suo motu disallowance computed by the assessee for Rs. 5,000/- under section 14A is not acceptable. Therefore, in our considered view, the said finding of the Assessing Officer is constitutes "satisfaction" as required to be recorded under section 14A(2) of the Income Tax Act, 1961 and thus, we reject the ground taken by the assessee. 13. Coming back to disallowance computed by the Assessing Officer for Rs. 10,67,172/- under section 14A read with Rule 8D of I.T. Rules, 1962. Admittedly, the assessee has not maintained separate books of acco....