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2019 (7) TMI 473 - HC - Income TaxAddition u/s 14A r.w.r. 8D on account of the interest expenses - assessee was maintaining mixed funds and has failed to establish that it has its own surplus funds for investment in dividends - non recording the satisfaction by the Assessing Officer before applying the formula given in sub-rule (2) of Rule 8D - whether once there are mixed funds, Rule 8D would be attracted mandatorily? - ITAT upholding the relief under Section 14A of the Act on account of the interest expenses - HELD THAT - The language of Section 14A of the Act is plain and clear. Before invoking Rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisfaction which is a safeguard provided in Section 14A should not be overlooked before going to Rule 8. In such circumstances we are not impressed by the submission canvassed on behalf of the Revenue that once there are mixed funds, Rule 8 would be attracted automatically. In the overall view of the matter, we are convinced that no error, not to speak of any error of law, could be said to have been committed by the Tribunal in passing the impugned order.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Non-decision on the ground of appeal regarding disallowance of membership fees. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: The primary issue revolves around the disallowance of ?5,83,15,000 under Section 14A read with Rule 8D concerning interest expenses. The Revenue contended that the assessee maintained mixed funds (both interest-free and interest-bearing) and failed to establish the availability of its own surplus funds for investment in dividends. The Revenue relied on the Supreme Court's decision in Maxopp Investment Ltd. v. CIT, which emphasized that Section 14A aims to prevent the deduction of expenditure incurred for earning exempt income. The Tribunal, however, upheld the CIT(A)'s decision, which had deleted the disallowance by considering the assessee's own case for previous assessment years and other relevant judgments. The Tribunal noted that the assessee had sufficient interest-free funds exceeding the investments made for earning tax-free income, and the Assessing Officer (AO) failed to prove that borrowed funds were used for such investments. The High Court analyzed whether the Tribunal erred in its decision. It referred to the Supreme Court's clarification in Maxopp Investment Ltd. that the AO must record satisfaction that the voluntary disallowance by the assessee was incorrect before applying Rule 8D. The High Court also cited its own decision in Principal Commissioner of Income Tax v. Shreno Limited, which held that the satisfaction requirement under Rule 8D(1) is not negated by the Supreme Court's decision in Maxopp Investment Ltd. The High Court emphasized that the AO must indicate dissatisfaction with the assessee's claim before invoking Rule 8D. The High Court concluded that the Tribunal did not commit any error in its decision, as the AO did not record the necessary satisfaction before applying Rule 8D. Thus, the appeal on this issue was dismissed. 2. Non-decision on the ground of appeal regarding disallowance of membership fees: The Revenue also raised the issue of the Tribunal not deciding the ground of appeal related to the disallowance of membership fees. However, the High Court's judgment primarily focused on the disallowance under Section 14A and did not provide a detailed analysis of this issue. The absence of a specific ruling on this ground indicates that it was not a substantial question of law warranting further consideration. Conclusion: The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision to delete the disallowance under Section 14A. The Court held that the AO must record dissatisfaction with the assessee's claim before applying Rule 8D, and in this case, the AO failed to do so. The appeal did not present a substantial question of law, and thus, the Tribunal's order was upheld.
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