2014 (7) TMI 1286 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - non recording of reasoning for dissatisfaction with regard to the working/claim of the assessee - Held that - Perusal of the assessment order reveals that the AO has not followed the guidelines of objective satisfaction as laid down by the hon ble Bombay high Court in the case of Godrej & Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT) while making the disallowance . He without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act. The ld. CIT(A) also ignored the mandate of the provisions of section 14 A, while confirming the disallowance. We restore this issue back to the file of the AO with a direction that the AO will give opportunity to the assessee to place on record all the relevant facts including its accounts and then examine the computation/calculation made in this regard by the assessee having regard to the accounts of the assessee. The AO will be at liberty to call for any record/evidences or statement etc. from the assessee as may be required by him for deciding the issue under consideration. After going through the details provided by the assessee, if the AO will be satisfied with the claim/calculation made by the assessee, then he will assess the income accordingly. - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:

1. Disallowance of expenditure under section 14A of the Income Tax Act read with rule 8D.

Analysis:

The appeal was filed against the Commissioner of Income Tax (Appeals) order for the assessment year 2008-09, specifically regarding the confirmation of the addition of Rs. 10,49,901 made under section 14A of the Income Tax Act read with rule 8D. The assessing officer noted that the assessee had not apportioned any expenditure in relation to the exempt income of Rs. 8,78,069 received as dividends. The assessing officer disagreed with the assessee's working of administrative and managerial expenses but accepted the claim of no interest expenditure for earning exempt income. Consequently, the assessing officer disallowed Rs. 10,49,901 based on rule 8D.(iii) of the Income Tax Rules.

During the appeal before the CIT(A), the representative of the assessee argued that the assessing officer did not provide reasoning for rejecting the assessee's self-assessed disallowance of Rs. 4,99,614. However, the CIT(A) upheld the assessing officer's disallowance under rule 8D(iii) for A.Y. 2008-09. The tribunal considered the parties' submissions and referred to the case of 'Godrej & Boyce Manufacturing Co. Ltd.' where it was established that the assessing officer must objectively assess the correctness of the claim made by the assessee regarding expenditure in relation to exempt income before resorting to rule 8D.

The tribunal found that the assessing officer did not follow the guidelines of objective satisfaction as mandated by the 'Godrej & Boyce' case while making the disallowance. Therefore, the issue was remanded back to the assessing officer with directions to allow the assessee to present all relevant facts and examine the computation made by the assessee. The assessing officer was instructed to record reasons for any dissatisfaction with the assessee's claim before resorting to rule 8D. The assessee was directed to cooperate by providing necessary details. As a result, the appeal of the assessee was allowed for statistical purposes.