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2018 (7) TMI 1725 - AT - Income TaxAddition u/s 14A r.w.r. 8D - Held that - Requirements of section 14A requires assessee to explain and bring on record complete modus operandi of the operations carried out by it with respect to its investments activities and the persons/cost associated with same which in the instant case are not brought on record by the assessee. Thus in view of submission of the assessee that there are no expenses incurred in connection with the investment activity and earning of an exempt income prompted the AO to trigger the invocation of Rule 8D of the 1962 Rules but the AO was required to record satisfaction having regard to the accounts of the assessee which in the instant case was not recorded by the AO . In all fairness to both the parties, the matter need to be restored to the file of the AO for fresh adjudication and the assessee is directed to furnish complete details of its modus-operandi and operational details .
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962. 2. Short credit of Tax Deducted at Source (TDS). 3. Levy of interest under Section 234B/234C of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee, a firm of advocates, filed appeals for AY 2011-12 and 2012-13 against the orders of the CIT(A) confirming additions made by the AO under Section 14A read with Rule 8D. The AO disallowed ?4,89,583 for AY 2011-12 and ?7,89,898 for AY 2012-13, arguing that the assessee incurred expenses for managing investments that generated exempt income. The CIT(A) upheld this disallowance, reasoning that managing investments necessitates expenses, even if the assessee claimed none were incurred. The tribunal observed that the AO did not record satisfaction as required under Section 14A(2) before invoking Rule 8D. The tribunal noted that the assessee claimed no expenses for earning exempt income and argued that portfolio managers' fees were embedded in transaction costs. The tribunal concluded that the AO must record satisfaction regarding the accounts of the assessee before making disallowances under Section 14A. The tribunal restored the matter to the AO for fresh adjudication, directing the assessee to provide detailed evidence of its investment activities and associated costs. The tribunal also agreed that disallowance under Section 14A cannot exceed the expenses claimed as deductions. 2. Short Credit of TDS: For AY 2012-13, the assessee claimed that the AO/CIT(A) did not allow full credit for TDS, resulting in a shortfall of ?13,25,258. The tribunal restored this issue to the AO for verification of the assessee's claim and directed that appropriate credits be granted if the claim is found genuine. 3. Levy of Interest under Section 234B/234C: The assessee contested the levy of interest under Sections 234B and 234C. However, the tribunal’s decision did not specifically address this issue, implying that it was not a primary ground of contention in the appeals. Conclusion: The tribunal allowed both appeals for statistical purposes, directing the AO to re-examine the disallowances under Section 14A read with Rule 8D after recording proper satisfaction and to verify the TDS credit claim for AY 2012-13. The tribunal emphasized providing the assessee with an adequate opportunity to present evidence and arguments in the re-assessment proceedings.
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