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2015 (6) TMI 640 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D(2)(iii) - Held that - In view of the detailed working given by the assessee and following the ratio laid down in Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) and Taikisha Engineering India Ltd. 2014 (12) TMI 482 - DELHI HIGH COURT and Maxopp Investment Ltd. 2011 (11) TMI 267 - Delhi High Court before applying the provisions of Rule 8D of the I.T. Rules, the AO was duty bound to record his dissatisfaction that the working of the disallowance made by the assessee under section 14A of the Act was incorrect. A perusal of the assessment order reflects that no such dissatisfaction was recorded by the AO and in view thereof the provisions of section 14A(2) of the Act had not been applied and accordingly we find no merit in the disallowance made by the AO under section 14A(2) of the Act read with Rule 8D without recording dissatisfaction that the working made by the assessee vis- -vis the expenditure which is to be disallowed under section 14A of the Act was incorrect. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D(2)(iii) of the Income Tax Rules. 2. Methodology for computing disallowance under Section 14A. 3. Assessing Officer's satisfaction regarding the correctness of the assessee's claim. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D(2)(iii) of the Income Tax Rules: The assessee contested the disallowance of Rs. 39,40,500/- under Section 14A read with Rule 8D(2)(iii). The Assessing Officer (AO) computed the disallowance as per Rule 8D, which resulted in a higher disallowance than claimed by the assessee. The AO restricted the disallowance to Rs. 27,52,808/- after considering the assessee's suo moto disallowance of Rs. 19,72,280/-. The CIT(A) upheld the AO's order but deleted the double disallowance of STT paid of Rs. 7,78,804/-. 2. Methodology for computing disallowance under Section 14A: The assessee argued that the CIT(A) did not follow the methodology adopted in preceding assessment years, which had been accepted by the Department. The assessee maintained a separate treasury department and applied a percentage of 28% to the total expenses incurred to compute the disallowance under Rule 8D. The Tribunal noted that the assessee's detailed working showed an amount of Rs. 19.72 lakhs attributable to the exempt income. 3. Assessing Officer's satisfaction regarding the correctness of the assessee's claim: The primary contention was that the AO did not record any satisfaction regarding the incorrectness of the assessee's disallowance computation before applying Rule 8D. The Tribunal emphasized that as per the Hon'ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. and the Hon'ble Delhi High Court in Maxopp Investment Ltd., the AO must first determine the correctness of the assessee's claim by examining the accounts. Only if the AO is not satisfied, can he apply Rule 8D. The Tribunal found that the AO did not record such dissatisfaction, thus invalidating the disallowance made under Section 14A read with Rule 8D. Conclusion: The Tribunal held that the AO's failure to record dissatisfaction with the assessee's computation of disallowance under Section 14A vitiated the order. Consequently, the disallowance made by the AO was not upheld. The appeal of the assessee was allowed, and the grounds raised were accepted. Order Pronouncement: The appeal of the assessee was allowed, and the order was pronounced in the open court on 10th June, 2015.
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