2017 (9) TMI 471 - AT - Income Tax

AO disallaowed expenses u/14A incurred for earning exempt income- CIT(A) upheld decision of AO - Aggreived assessee filed appeal against order of CIT(A) - Held that - Tribunal is of the opinion that disallowance made by the Ld. AO u/s 14A , without recording satisfaction that the claim of the assessee is incorrect about not incurring any expenditure for earning exempt income,no disallowance can be made.Following the decision of the Hon ble Delhi High Court wherein it is held that the satisfaction of the assessing officer in terms of section 14A(2) of the act is mandatory. - Decided in favor of assessee.

Summary

Issues:
Disallowance under section 14A of the Income Tax Act.

Analysis:
The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals) upholding the disallowance made by the Ld. assessing officer under section 14A of the Income Tax Act. The assessee claimed no expenditure was incurred to earn exempt income, but the Ld. AO applied Rule 8D of the income tax act and made a disallowance of ?108194. The Ld. departmental representative supported the lower authorities' orders. The tribunal noted that the Ld. AO did not record satisfaction that the claim of the assessee about not incurring any expenditure for earning exempt income was incorrect before making the disallowance. Referring to a High Court decision, the tribunal emphasized the mandatory requirement for the assessing officer's satisfaction under section 14A(2) of the act. The tribunal reversed the lower authorities' findings and directed the Ld. assessing officer to delete the disallowance of ?108194 made under section 14A of the Income Tax Act.

The tribunal highlighted that the satisfaction of the assessing officer under section 14A(2) is crucial and mandatory before making any disallowance under the Income Tax Act. Citing previous High Court decisions, the tribunal emphasized the importance of the assessing officer's satisfaction regarding the correctness of the claim of expenditure made by the assessee. The tribunal's decision was based on the principle that without the assessing officer's satisfaction, no disallowance can be made under section 14A of the Income Tax Act. The tribunal's ruling was in line with the legal requirement for the assessing officer to assess and record satisfaction before disallowing any expenditure related to earning exempt income under the Income Tax Act.

In conclusion, the tribunal allowed the appeal of the assessee, directing the Ld. assessing officer to delete the disallowance of ?108194 made under section 14A of the Income Tax Act. The tribunal's decision was based on the lack of satisfaction recorded by the assessing officer regarding the correctness of the claim of expenditure made by the assessee, emphasizing the mandatory nature of such assessment before any disallowance can be imposed under section 14A of the Income Tax Act.