2023 (1) TMI 1516

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....) had dismissed the appeal against the Assessment Order, dated 24.12.2018, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 2. The Appellant has raised following grounds of appeal: "1. The ld. CIT (A) erred in confirming the disallowance u/s 14A of the Act r.w.r. 8D of the IT Rules, 1962. 1.i. In doing, so, the ld. CIT (A) did not appreciate that no expenditure was claimed which could be disallowed u/s 14A of the Act in as much as the expenses incurred in respect of investment activities were debited to personal capital a/c & were not claimed in the computation of total income and the items debited to Profit & Loss a/c were in respect of derivative transactions which items ....

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....e CIT(A). All the grounds raised by the Appellant, reproduced in paragraph 2 above, pertain to the aforesaid addition and are, therefore, taken up together hereinafter. 5. The Ld. Authorised Representative for the Appellant submitted that during the course of assessment proceedings, in response to notice dated 16.12.2018, issued under Section 142(1) of the Act, the Appellant filed letter, dated 19.12.2018, making detailed submissions and bringing on record relevant facts to show that no disallowance under Section 14A of the Act was warranted. No expenditure related to exempt income earned from investments made by the Appellant have been debited to the Profit & Loss account and therefore, no deduction has been claimed in respect of the sa....

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....pt income of INR 12,75,760/-. However, no disallowance was offered by the Appellant under Section 14A of the Act read with Rule 8D of the Rules. Referring to paragraph 6.6 and 6.7 of the order passed by the CIT (A) she submitted that undoubtedly some expenditure, though indirect, must have been incurred by the Appellant and therefore, the Assessing Officer was justified in invoking provisions of Section 14A read with Rule 8D of the Rules. 7. Having considered the rival submissions and perused the material on record, we are of the view that, both, the Assessing Officer and the CIT (A) have grossly erred in law and have failed to appreciate the facts of the case. In the present case the Assessee has accounted for expenses incurred for earn....

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....ficer had noted that no expenditure has been claimed by the Appellant against the exempt income of INR 12,75,760/-. 8. Further, we also find merit in the contention advanced by the Ld. Authorised Representative for the Appellant that the Assessing Officer was under obligation to record satisfaction before invoking provisions of Section 14A of the Act. The Hon'ble Supreme Court had, in the case of Maxopp Investments Ltd. Vs CIT, Delhi : 402 ITR 640 (SC), 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 dis....