TaxTMI 
TaxTMI 
2024 (4) TMI 1373
X X X X Extracts X X X X
X X X X Extracts X X X X
....st the disallowance offered by the appellant company u/s 14A of Rs. 7,18,309. 2. The Learned CIT(A) further erred in rejecting the suo-moto disallowance made by the appellant company under section 14A without recording his dis-satisfaction having regard to the accounts of the appellant company with cogent reasons for rejecting the claim of the appellant that Rs. 7,18,309 has been incurred in relation to income which does not form part of the total taxable income as per the provisions of sub-section (2) of section 14A of the Income-tax Act, 1961. 3. The Learned CIT(A) failed to appreciate that the disallowance under section 14A read with rule 8D cannot be automatic without considering the working of disallowance made by the appellant in the course of assessment proceedings on the basis of the accounts maintained by the appellant company. The condition precedent of recording the required satisfaction which is safeguard provided in section 14A shall not be overlooked before going to Rule 8D on the basis of the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs CIT 402 ITR 640. 4. The Learned CIT(A) failed to consider that AO ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 14A read with rule 8D is warranted. The correct facts that appellant had made the disallowance u/s 14A read with rule 8D in its Return of Income on the basis of the expenditure incurred in making the investment in liquid scheme of mutual fund." 3. All the grounds raised in the present appeal pertaining to the Assessment Year 2018-19 are directed against the addition of 1,06,10,282/- made by Assessing Officer under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 [for short 'IT Rules'] vide assessment order dated 27/03/2021, passed under Section 143(3) read with Sections 143(3A) & 143(3B) of the Act which was sustained by the CIT(A) vide order dated 25/09/2023. 4. Before us it was contended by the Learned Authorised Representative for the Appellant that the Assessing Officer has failed to record his dis-satisfaction regarding the correctness of the suo-moto disallowance of INR 7,18,309/- made by the Appellant under Section 14A of the Act in the return of income before invoking the provisions of Rule 8D of the IT Rules and computing the amount of disallowance under Section 14A of the Act at INR 1,06,10,282/-. The Learned Authorised Representative for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." (Emphasis Supplied) 8. Similar view was taken by the Hon'ble Supreme Court in case of Maxopp Investment Ltd. vs. CIT 347 ITR 272 wherein it was held as under: "41. 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the total income under the 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." (ii) Investment of crores of rupees require many investment related decisions to be made. The office infrastructure and resources are used while making these decisions. Some expenditure ought to be incurred in the form of administrative expenses and various general expenses. It would be not proper to say that tax-free income can be earned by incurring no or nominal expenditure. The term "expenditure" occurring in Section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. Thus, the contention that no expenditure is incurred in not acceptable. (iii) It is pertinent to mention here that even if no exempt income is actually earned or received during the year in any form whatsoever, the provisions of Section 14A read with Rule 8D apply where any such investment is made wherefrom such type of income might be generated either i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the above discussion, I am not satisfied with the claim of the assessee that no expenditure is incurred and no disallowance u/s 14A is warranted. Therefore, the provisions of Section 14A are applicable to the assessee's case. The disallowance u/s 14A is hereby computed in accordance with the provisions of Rule 8D as under: ....................." (Emphasis Supplied) 11. On perusal of above, it can be seen that the Assessing Officer has rejected the suo-moto disallowance should under Section 14A of the Act. While doing so, the Assessing Officer has neither referred to any expenses incurred/claimed by the Appellant for earning the exempt income, nor made any reference to the accounts of the Appellant. The computation of the suo-moto disallowance offered by the Appellant under Section 14A of the Act (placed at page 241 of the paper-book) was filed by the Appellant during the assessment proceedings as Annexure to Reply Letter, dated 11/02/2022. The Appellant had disallowed INR 7,18,309/- consisting of the salary cost of one of its employees aggregating to INR 7,13,000/- and telephone reimbursement expenses of INR 5,309/-. However, the Assessing Officer has simply reje....