2017 (11) TMI 1220 - AT - Income Tax

Disallowance u/s 14A - non recording of the satisfaction by the Assessing Officer - Held that - When the pre-requisite condition for making disallowance u/s 14A, being the recording of the satisfaction by the Assessing Officer not accepting the correctness of the assessee s claim, was lacking, the ld. CIT(A) should not have come to the stage of computation of the amount of disallowance. As the jurisdictional condition for making disallowance u/s 14A was wanting, the ld. CIT(A) ought to have deleted the entire addition instead of restricting it to a lower level. The Revenue appears to have accepted the ld. CIT(A) s order on the question of not recording of satisfaction by the AO inasmuch as nothing has been brought to our notice by the ld. DR to demonstrate that the Department has preferred any appeal on this score before the tribunal. The picture which, therefore, emerges is that the Assessing Officer did not record any satisfaction as stipulated in subsection (2) of section 14A and as the sequitur, the disallowance u/s 14A could not have been made - Decided in favour of assessee Deferred revenue expenditure addition - deduction written off during the year - CIT-A following the view taken in earlier years in the assessee s own case held that the assessee should have claimed deduction at 1/10th of the expenditure for the present year and the next two year - Held that - CIT(A) followed the view taken by him in the assessee s own case for two preceding years. There is nothing on record to suggest that such a view has been altered in the further appeal. The assessee s contention about bringing temporary structure into place during the year warranting full deduction, is not backed by any evidence whatsoever. In the given circumstances, we uphold the view taken by the ld. CIT(A) on this score. This ground is not allowed.

Summary

Issues:
1. Disallowance of expenses under section 14A for assessment years 2011-12 and 2012-13.
2. Deduction of written-off expenditure.

Analysis:

Assessment Year 2011-12:
- The first issue pertains to the disallowance of expenses under section 14A. The Assessing Officer made a disallowance of &8377; 34,76,439/-, but the CIT(A) restricted it to &8377; 3,25,201/- as the AO did not record satisfaction as required by section 14A(2).
- The Tribunal noted that the recording of satisfaction by the AO is a prerequisite for making a disallowance under section 14A. Citing relevant case laws, it emphasized that the AO must not be satisfied with the correctness of the claim for expenditure before initiating a disallowance.
- Despite the CIT(A) restricting the disallowance to 0.5% of investments, the Tribunal held that since the AO did not record satisfaction, the entire disallowance should be deleted.
- The second issue relates to allowing a deduction of &8377; 12,369/- out of &8377; 49,478/- written off during the year. The CIT(A) directed the AO to allow deduction for &8377; 12,369/- based on the principle of consistency, as done in earlier years.

Assessment Year 2012-13:
- The only issue in this year is the confirmation of disallowance under section 14A read with Rule 8D at 0.5%. Similar to the preceding year, the AO did not record satisfaction, and the CIT(A) sustained the disallowance at 0.5%.
- The Tribunal reiterated that the recording of satisfaction is crucial for making a disallowance under section 14A and ordered the deletion of the entire disallowance for this year as well.

In conclusion, the Tribunal partly allowed the appeal for the assessment year 2011-12 and allowed the appeal for the assessment year 2012-13. The judgments emphasized the importance of the AO recording satisfaction before disallowing expenses under section 14A and upheld the principle of consistency in allowing deductions for written-off expenditures.