TaxTMI 
TaxTMI 
2026 (3) TMI 1260
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.... 14A of the Act - Rs. 3,00,62,303/-: 1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the disallowance made by the Ld. Assessing Officer ("Ld. AO") amounting to Rs. 3,00,62,303/- under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. 1.2 On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in not appreciating the scientific method of computation of suo-moto disallowance by the Appellant and hence the same ought to be set aside. 1.3 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in affirming the mechanical and formulaic computation method adopted by the Ld. AO under Section 14A, without giving due consideration to the detailed and substantive submissions made by the Appellant during both the assessment and appellate proceedings. 2. Rental expenses were considered as rental income - Rs. 41,00,000/-: 2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition of rental income of Rs. 41,00,000/- under the head income from house property. 2.2 ....
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....tion 115JB of the Act. The original return of income was filed based on management accounts. The return of income was processed under Section 143(1) determining total income at INR.6,80,51,040/-. Subsequently, the Assessee's case was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). The statutory audit of the Assessee was concluded during the course of assessment proceedings and accordingly, the Assessee submitted the audit financial statements along with a revised computation of income and a tax payment challan (including payment of applicable interest) on 30/05/2023. In relation to the international transactions entered into by the Assessee a reference was made to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act. The TPO examined the international transactions and accepted the price at which such transactions have been affected to be at arm's length, and no adjustment has been proposed vide order dated 14/07/2023. The Assessing Officer passed the Assessment Order under Section 143(3) of the Act dated 27/09/2023, after making, inter alia, the following additions/disallowances: (a) Disallowance of INR.3,00,62,303/- under Section 14....
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....sed by the Learned CIT(A) observing that the disallowance made by the Assessing Officer was less than the exempt income and therefore, justified. As a result, the Assessee is now in appeal on this issue before the Tribunal. 9. We have heard rival submission and have perused the material on record. 10. The primary contention advanced on behalf of the Assessee that the Assessing Officer had failed to record proper satisfaction regarding the incorrectness of the claim of the Assessee before invoking provisions contained in Rule 8D of the IT Rules under Section 14A of the Act. We note that the Assessing Officer deal with the issue of disallowance under Section 14A of the Act in paragraphs 6.1 to 6.14 of the Assessment Order. On perusal of the same we find merit in the above contention advanced on behalf of the Assessee. After recording the facts and submission in relation to this issue, the Assessing Officer has returned the following findings: "6.8. The submission of the Assessee has been considered but the same is not found to be acceptable. The undersigned is not satisfied with the correctness of the claim of the assessee with regard to the expenditure which has been ....
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.... 14A of the Income Tax Act, 1961 as well as the heading of Rule 8D of the Income Tax Rules, 1962 indicates that it is not necessary that exempt income should have been "included" in a particular year's income for disallowance to be triggered. * Section 14A does not use the word 'income of the year' but uses 'income under the Act' indicating that to invoke disallowance of section 14A, it is not material that the assessee should have earned such exempt income during the financial year. * Even the wording of Rule BD suggests that section 14A would be triggered in respect of future exempt income. * In light of the above, the CBDT has clarified that Rule 8D read with section 14A of the Income Tax Act. 1961 provides for disallowance of expenditure even when a taxpayer has not earned any exempt income in a particular year. The investment whether or not, strategic or long term, might always fetch exempt income by way of divided/share of profit. Hence, disallowance u/s 14A is called for as per the provisions of the Act. As far as expenses are concerned, the assessee has incurred various expenses which are of mixed nature and cannot be ....
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....icer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill 2006 and the CBDT circular dated 28 December 2006 state that since the existing provisions of Section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a considerable dispute between tax payers and the department on the method of determining such expenditure. It was in this background that Sub-section (2) was inserted so as to provide a uniform method applicable where the Assessing....
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.... the power under Section 14A of the Act read with Rule 8D of the IT Rules was conditional upon the recording of objective satisfaction by the Assessing Officer with regard to the correctness of the claim of the Assessee having regard to the accounts of the Assessee. In the present case, the Assessing Officer has rejected the correctness of claim without making reference to accounts of the Assessee by making general observations. The computation of the Assessee which was based upon specific expenses identified by the Assessee was rejected alleging cherry picking. While doing so reliance was placed by the Assessing Officer on Circular No. 5 of 2014 issued by the Central Board of Direct Taxed. The said circular deals with applicability of Section 14A of the Act in a case where no exempt income has been earned by the Assessee during the relevant previous year. In the present case, the Assessee has earned exempt income during the year and has also offered disallowance under Section 14A of the Act. Therefore, Circular No. 5 of 2014 has no application to the facts of the present case. 13. In view of the above, we hold that the additional disallowance of INR INR.3,00,62,303/- made by th....