2016 (10) TMI 421 - AT - Income Tax

Disallowance u/s 14A - Held that - On perusal of the orders, we find that by invoking the provisions of section 14A r.w.r 8D, the AO has not at all commented on the disallowance of ₹ 2,50,000/- which was made by the assessee suo mottu for earning exempt income. We are of the considered opinion that invoking the provisions of section 14A r.w.r 8D without recording the satisfaction by the AO is wrong and accordingly the order of the ld.CIT(A) by upholding the action of AO cannot be sustained. We find that in the case of Kalyani Steels Ltd (2014 (2) TMI 661 - ITAT PUNE), the co-ordinate Bench of the Tribunal has held that non recording satisfaction with regard to the correctness of the claim of the assessee which is a mandatory requirement in terms of section 14A of the Act r.w.r 8D to compute the impugned disallowance is untenable in law. In the assessee s case also, we find that no satisfaction has been recorded as regard the invoking of the provisions of section 14A r.w.r 8D, and therefore application of section 14A r.w.r.8D is not correct as the necessary satisfaction in terms of section 14A(2) of the Act has not been recorded. Following the ratio laid down in the decision of the Tribunal (supra), we set aside the order of the ld.CIT(A) and direct the AO to delete the addition. This ground is allowed. Disallowance while computing the book profit u/s 115JB of the Act. Since the issue regarding disallowance made u/s 14A r.w.r.8D has been allowed by us, the issue raised in ground no.2 is also allowed in favour of the assessee by directing the AO to delete the addition made u/s 115JB of the Act.

Summary

Issues Involved:
Delay in filing appeal, Condonation of delay, Disallowance under section 14A of the Income Tax Act, 1961, Satisfaction requirement for disallowance, Investment motive, Disallowance of book profit u/s 115JB.

Delay in Filing Appeal & Condonation:
The appeal was filed with a delay of 240 days. The counsel cited genuine reasons for the delay, supported by an affidavit. The Tribunal, after considering the reasons, condoned the delay and admitted the appeal for adjudication.

Disallowance under Section 14A - Satisfaction Requirement:
The main issue was the disallowance of ?15,25,840 under section 14A of the Income Tax Act, 1961. The AO disallowed this amount invoking rule 8D without commenting on the assessee's suo motu disallowance of ?2,50,000. The Tribunal held that the AO must record satisfaction before applying rule 8D, as mandated by section 14A(2) of the Act. Citing various decisions, the Tribunal ruled in favor of the assessee, emphasizing the requirement of recording satisfaction before disallowance.

Investment Motive & Disallowance:
The assessee argued that the investment motive was not to earn dividends but to control subsidiary companies/group concerns. The counsel relied on decisions supporting this argument. The Tribunal found that the AO did not record satisfaction before disallowing the amount, leading to the deletion of the addition as the necessary satisfaction was missing.

Disallowance of Book Profit u/s 115JB:
The issue of disallowance of ?15,25,840 while computing book profit u/s 115JB was also raised. Since the disallowance under section 14A was allowed, the Tribunal directed the AO to delete the addition made u/s 115JB in favor of the assessee, resulting in the appeal being allowed.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of recording satisfaction before disallowing amounts under section 14A and directing the deletion of the disallowance while computing book profit u/s 115JB. The decision was pronounced on 25.08.2016.