2017 (8) TMI 717 - AT - Income Tax

Addition u/s 14A - applying the formula contained in Rule 8D - satisfaction contemplated u/s 14A(2) to make the addition - Held that - There is no reference to any of the fact-situation or any credible reasoning or material by the Assessing Officer before rejecting the plea of the assessee and proceeding to determine the disallowance by applying the formula contained in Rule 8D of the Rules. In fact, the phraseology of Sec. 14A itself specifies that the satisfaction contemplated is required to be arrived at having regard to the accounts , an approach which is conspicuous by its absence in the present case. In view of such an inadequacy in the action of the Assessing Officer, it has to be held that the satisfaction contemplated u/s 14A(2) of the Act has not been recorded by the Assessing Officer and thus, he has failed to comply with the condition precedent before embarking on applying the formula contained in Rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act. Thus, in our considered opinion, on this aspect itself, the determination of disallowance made by the Assessing Officer is untenable. We find that in its written submissions made to the Assessing Officer during the assessment proceedings, copies of which are placed in the Paper Book, assessee had explained the manner and justification for estimating such expenditure at ₹ 57,790/- and there is nothing on record to suggest as to why the same has been disregarded by the Assessing Officer. Therefore, in consequence, it has to be held that the disallowance of ₹ 9,95,080/- made by the Assessing Officer over and above the suo motu disallowance made by the assessee is unjustified and is directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance computed under section 14A of the Income Tax Act.

Analysis:
The judgment involves six appeals related to the same assessee for different assessment years, clubbed together for convenience. The lead case pertains to the Assessment Year 2008-09, challenging the disallowance under section 14A of the Act. The Assessing Officer added a sum to the returned income for disallowance, which the CIT(A) also affirmed, leading to the dispute. The assessee argued that the Assessing Officer did not follow the correct procedure under Sec. 14A(2) to invoke Rule 8D for computing the disallowance. The representative cited relevant communications and judgments to support the case.

The Revenue, represented by the CIT-DR, defended the disallowance based on the orders of the authorities below, emphasizing the substantial dividend income earned by the assessee.

The tribunal analyzed the provisions of Sec. 14A of the Act, emphasizing the need for the Assessing Officer to record satisfaction about the incorrectness of the assessee's claim before determining the disallowance under Rule 8D. Referring to legal precedents, the tribunal highlighted the importance of objective satisfaction before applying the formula for disallowance. It noted the inadequacy in the Assessing Officer's action in not recording such satisfaction, rendering the disallowance untenable. Additionally, the tribunal found the Assessing Officer's rejection of the assessee's explanation for estimating the expenditure unjustified, leading to the deletion of the disallowance.

Consequently, the tribunal allowed the appeal for the Assessment Year 2008-09, directing the deletion of the disallowance. The decision in this case was deemed applicable to similar appeals for other assessment years involving the same issues.

In conclusion, the tribunal set aside the disallowance under section 14A of the Act, emphasizing the necessity for the Assessing Officer to record objective satisfaction before applying Rule 8D for computing the disallowance. The tribunal also highlighted the importance of considering the assessee's explanations and justifications in such matters, ensuring a fair and reasoned decision-making process.