2026 (1) TMI 1410

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....ievance of the assessee is against the finding of ld.CIT(A) confirming the disallowance u/s. 14A of the Act at Rs. 47,08,705/-. 3. Brief facts of the case are that the assessee is a Limited Company engaged in the business of manufacturing of compression systems, transmission products etc. Return of income for A.Y. 2020-21 e-filed on 05.12.2020 declaring income of Rs. 61,02,60,260/-. Case selected for scrutiny under CASS and valid notices u/s. 143(2) and 142(1) of the Act were duly served upon the assessee. So far as the issue on hand is concerned, ld. Assessing Officer observed that the assessee has claimed exempt income of Rs. 3,78,18,307/- and suo moto disallowed Rs. 2,58,000/- u/s. 14A of the Act towards expenditure incurred for earni....

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.... of fees is also charged by the Mutual Fund Companies and therefore no separate funds are needed from the assessee company's employees to look after the investment. Ld. AO has not made proper satisfaction prior to making disallowance. Reliance placed on the decision of Coordinate Bench, Mumbai in the case of HDFC Bank Ltd. Vs. ACIT (2025) 171 taxmann.com 47. 6. On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld.CIT(A). 7. We have heard the rival submissions and perused the record placed before us. Assessee is aggrieved with the disallowance u/s. 14A of the Act at Rs. 47,08,705/-. We note that the assessee has earned exempt income of Rs. 3,78,18,307/- and having an annual average of the mont....

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....usal of the above judgment, we note that Hon'ble Court has held that ld. AO prior to applying Rule 8D of the Income Tax Rules need to record satisfaction that having regard to the kind of the assessee and that the suo moto disallowance u/s. 14A is not correct. On examining the facts of the instant case, we observe that ld. AO firstly in para 3.3.8 of the assessment order has referred to the calculation of annual average of monthly average of investments. Thereafter, he moved on to examine the disallowance of Rs. 2,58,000/- offered by the assessee. Ld. AO has subsequently dealt with this aspect and the observation of the ld. AO towards recording of satisfaction prior to applying Rule 8D reads as under : "From the above Rule 8D(i)(ii....

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....satisfied that ld. AO has examined the calculations of disallowance made by the assessee and further has examined the records and has observed that considering the nature of investments, time required along with expert advice and various meetings which are to be consistently held around the year for managing such huge amount of investments, assessee has not offered the correct amount of disallowance. Now once we are satisfied that the AO has recorded proper satisfaction prior to making alleged disallowance, next point to be dealt is the quantum of disallowance. 11. We observe that during the course of appellate proceedings before ld.CIT(A) assessee has filed the written submissions appearing at page 84 of the impugned order wherein it ha....