2015 (9) TMI 1112 - AT - Income Tax

Disallowance of expenditure under Section 14A applying Rule 8D of the Rules - Held that - Unless the satisfaction is recorded by the Assessing Officer to the effect that the disallowances offered by the assessee is unsatisfactory, no disallowance can be made under the provisions of Section 14A of the Act. See CIT Vs. Hero Management Services Ltd. 2013 (10) TMI 80 - DELHI HIGH COURT - we hereby direct the Assessing Officer to delete the additions made under Section 14A of the Act. - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing appeals.
2. Applicability of Section 14A read with Rule 8D of the Income Tax Rules, 1962.
3. Satisfaction requirement by the Assessing Officer for disallowance under Section 14A.
4. Calculation of disallowance under Rule 8D.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appellant company filed an application for condonation of delay of 344 days in filing the appeals. The delay was attributed to the pressure of work due to receiving 598 notices from the Income Tax Department following search and seizure operations. The Tribunal, considering the difficulties faced by the appellant, condoned the delay in the interest of justice.

2. Applicability of Section 14A Read with Rule 8D of the Income Tax Rules, 1962:
The appellant company contended that the investments were made for the purpose of controlling the management of group companies and not for earning dividend income. Therefore, the provisions of Section 14A should not be applied. The Assessing Officer, however, applied Rule 8D to calculate the disallowance under Section 14A without recording any reasons for finding the appellant's claim unsatisfactory. The CIT(A) upheld the applicability of Rule 8D but granted partial relief.

3. Satisfaction Requirement by the Assessing Officer for Disallowance under Section 14A:
The Tribunal emphasized that the Assessing Officer must record satisfaction regarding the correctness of the claim of the assessee before invoking Rule 8D. This principle is supported by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Taikisha Engineering India Ltd., which mandates that the Assessing Officer must examine the accounts and record reasons for finding the assessee's claim unsatisfactory. Without such satisfaction, the disallowance under Section 14A cannot be upheld.

4. Calculation of Disallowance under Rule 8D:
The Tribunal noted that the Assessing Officer proceeded with the calculation under Rule 8D without rendering any finding on the reasonableness of the disallowance offered by the appellant. The Tribunal cited several decisions, including the Delhi High Court in Maxopp Investment Ltd. and the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd., which state that the Assessing Officer must first record dissatisfaction with the assessee's claim before applying Rule 8D. The Tribunal concluded that the Assessing Officer had erred in invoking Rule 8D without recording such satisfaction.

Conclusion:
The Tribunal directed the Assessing Officer to delete the additions made under Section 14A of the Act, as the preconditions for invoking Rule 8D were not satisfied. Consequently, all three appeals filed by the appellant were allowed. The decision was pronounced in the open court on 2nd September 2015.

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