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2018 (5) TMI 2118 - AT - Income TaxAddition u/s 14A r.w.r. 8D - CIT(A) upheld the disallowance made by the AO rejecting the contention of assessee that in view of non-recording of satisfaction by the Assessing Officer there was no merit in the disallowance made - HELD THAT - The requirement of section 14A(1) of the Act is that in case where the assessee has earned exempt income which is not taxable in the hands of assessee then the Assessing Officer has to record satisfaction as per sub-section (2) of section 14A of the Act to come to a finding as to the applicability of provisions of section 14A(1) of the Act. In the absence of recording requisite satisfaction by the AO no disallowance can be made under section 14A of the Act. We find that similar issue has been considered by the Tribunal in the case of KPIT Technologies Ltd 2018 (4) TMI 863 - ITAT PUNE wherein reliance was placed on the ratio laid down by the Hon ble Supreme Court in Godrej Boyce Manufacturing Company Ltd. (supra) and also in Maxopp Investment Ltd. 2017 (5) TMI 403 - SUPREME COURT In the facts of the present case where the AO has failed to record satisfaction before invoking the provisions of section 14A(1) of the Act we find no merit in the disallowance worked out by the Assessing Officer and we reverse the same. The disallowance made by the Assessing Officer in this regard is thus deleted. Assessee appeal allowed.
Issues:
Appeal against disallowance under section 14A of the Income-tax Act, 1961. Analysis: The appeal challenges the disallowance made under section 14A of the Act amounting to ?4,53,019. The Assessing Officer disallowed the sum under Rule 8D of the Rules as the assessee had claimed exempt income without working out the disallowance. The contention was that the disallowance should be restricted to ?3,000. The CIT(A) upheld the disallowance, rejecting the argument of non-recording of satisfaction by the Assessing Officer. The requirement of section 14A(1) mandates the Assessing Officer to record satisfaction under section 14A(2) before making any disallowance. Failure to record such satisfaction renders any disallowance invalid. The Tribunal referred to various decisions, including those by the Hon'ble Supreme Court, emphasizing the necessity of recording satisfaction before invoking section 14A. In a similar case, the Tribunal held that the Assessing Officer must record why the assessee's disallowance was incorrect before applying Rule 8D. The absence of such satisfaction renders the disallowance baseless. The Tribunal reversed the disallowance, aligning with the Supreme Court's rulings. The Pune Bench of Tribunal, following the Supreme Court's precedents, reversed the disallowance made by the Assessing Officer due to the lack of recorded satisfaction. The Tribunal emphasized the importance of complying with section 14A(2) and held that the action of the Assessing Officer was not in accordance with the law. In conclusion, the appeal was allowed, and the disallowance made by the Assessing Officer was deleted. The Tribunal emphasized the necessity of recording satisfaction before invoking section 14A and upheld the principles laid down by the Hon'ble Supreme Court in similar cases. This comprehensive analysis highlights the key arguments, legal provisions, and precedents considered in the judgment, ultimately leading to the allowance of the appeal against the disallowance under section 14A of the Income-tax Act, 1961.
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