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2017 (2) TMI 1178 - AT - Income TaxAddition u/s 14A - Held that - The assessee has made a disallowance on its own by filing return of income in response to notice under section 148 of the act of a sum of ₹ 2 Lacs. The Ld. assessing officer has not recorded any satisfaction that how the estimate made by assessee is incorrect. In view of this we also disapprove the action of the Ld. assessing officer that without recording any satisfaction about the correctness of the claim of the assessee he has straightway proceeded to apply rule 8D of the income tax rules 1962 which is a mandatory requirement. On that count also appeal of the revenue fails.
Issues:
1. Disallowance under section 14A read with rule 8D for assessment year 2005-06. 2. Applicability of rule 8D retrospectively. 3. Correctness of disallowance made by the assessing officer. 4. Action of the Ld. CIT (A) in deleting the disallowance. Analysis: Issue 1: Disallowance under section 14A read with rule 8D for assessment year 2005-06 The revenue appealed against the deletion of an addition made by the assessing officer under section 14A read with rule 8D. The Ld. CIT (A) based the deletion on the decision of the Hon'ble Delhi High Court in a similar case. The appellant argued that the rule 8D should have been applied even for years before 2008-09. The authorized representative of the assessee contended that rule 8D was not applicable for the assessment year in question. The tribunal, in line with the Delhi High Court decision, held that the provisions of sub-sections (2) and (3) of section 14A would be operational only from the introduction of rule 8D, making the disallowance in this case unwarranted. Issue 2: Applicability of rule 8D retrospectively The tribunal, following the Delhi High Court's ruling, emphasized that the Assessing Officer must ascertain the correctness of the claim of the assessee regarding expenditure related to non-taxable income. The tribunal clarified that even before the introduction of sub-sections (2) and (3) of section 14A, the Assessing Officer had to reject the claim of the assessee with cogent reasons before determining the expenditure. The tribunal highlighted that the Assessing Officer should adopt a reasonable and acceptable method for determining such expenditure, as mandated by the law. Issue 3: Correctness of disallowance made by the assessing officer The Ld. CIT (A) had deleted the disallowance based on the Delhi High Court's decision and the lack of satisfaction recorded by the assessing officer regarding the correctness of the claim. The tribunal concurred with the CIT (A) that the assessing officer had not provided any valid reasons for applying rule 8D without verifying the accuracy of the assessee's claim. The tribunal found the assessing officer's actions to be in violation of the mandatory requirements, leading to the dismissal of the revenue's appeal. Issue 4: Action of the Ld. CIT (A) in deleting the disallowance The tribunal upheld the decision of the Ld. CIT (A) to delete the disallowance under section 14A, emphasizing the need for the assessing officer to follow due process in determining the expenditure related to non-taxable income. The tribunal also noted that the assessee had voluntarily made a disallowance, further supporting the dismissal of the revenue's appeal. In conclusion, the tribunal dismissed the revenue's appeal, citing the Delhi High Court's decision and the lack of proper assessment procedures followed by the assessing officer.
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