2016 (12) TMI 1791 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - AO's non satisfaction with correctness of the claim of the assessee - HELD THAT - For the purpose of provisions under section 14A read with Rule 8D of the Rules, it is a sine qua non that the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income, which is conspicuous in this matter. We, therefore, have no hesitation to hold that it is the satisfaction of Assessing Officer and Assessing Officer alone that infuses life into the order of Assessment in respect of disallowance of deductions, and none other much less the learned CIT(Appeals) can substitute his opinion for that of the Assessing Officer to validate otherwise invalid order of Assessing Officer. With this view of the matter we hold that the order of the authorities cannot be sustained and the additions made on account of invocation of Section 14A of the Act read with Rule 8D of the Rules shall be deleted. We accordingly allow the appeal of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Rules.
2. Recording of satisfaction by the Assessing Officer for invoking Rule 8D.
3. Validity of the order of the Assessing Officer in disallowing expenses.
4. Compliance with the provisions of Section 14A(2) and Rule 8D(1).

Analysis:

1. The case involved a dispute regarding the disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Rules. The Assessing Officer had disallowed expenses related to exempt income, leading to an addition to the assessee's income. The appeal was made against the revision order of the Ld. CIT-VI, Kolkata, confirming the addition under section 14A of the Act.

2. The main contention was whether the Assessing Officer had recorded satisfaction for invoking Rule 8D. The appellant argued that the absence of such satisfaction rendered the application of Rule 8D vitiated. The appellant relied on various decisions to support this argument, emphasizing the necessity of the Assessing Officer's satisfaction before applying Rule 8D.

3. The Assessing Officer had disallowed expenses without recording any dissatisfaction about the correctness of the claim of the assessee. However, the learned CIT(Appeals) observed that the claim of expenditure made by the assessee appeared to be meager and not correct. The learned CIT(Appeals) found sufficient compliance with the recording of satisfaction for invoking provisions under section 14A of the Act read with Rule 8D.

4. The discussion revolved around the provisions of Section 14A(2) and Rule 8D(1), emphasizing the importance of the Assessing Officer's satisfaction with the claim of expenditure made by the assessee. The Tribunal highlighted the necessity for the Assessing Officer to reject the claim of the assessee with cogent reasons before determining the amount of expenditure under Section 14A read with Rule 8D. The Tribunal concluded that the Assessing Officer's satisfaction was essential for the validity of the order regarding disallowance of deductions.

In conclusion, the Tribunal allowed the appeal, holding that the Assessing Officer's satisfaction was crucial for invoking Section 14A of the Act read with Rule 8D, and the order of the authorities disallowing deductions was not sustainable. The additions made on account of invoking Section 14A of the Act read with Rule 8D were deleted.