2023 (4) TMI 531 - AT - Income Tax

Disallowance u/s 14A - objective satisfaction recorded by the Ld. AO having regard to the accounts of the assessee - HELD THAT - The mandate of section 14A(2) and 14A(3) of the Act read with Rule 8D(1) of the Rules clearly stipulates that the AO is supposed to examine the financial statements of the assessee and from the said examination arrive at an objective satisfaction as to what expenses could be attributed towards the investment activity of the assessee. This exercise has not been apparently done by the AO in the instant case as is evident from the manner of recording satisfaction reproduced. We find that the Hon ble Supreme Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT had categorically held that the Ld. AO is bound to record objective satisfaction as to why the claim made by the assessee is incorrect. In the absence of mandatory objective satisfaction recorded by the Ld. AO in terms of section 14A(2)/14A(3) of the Act read with Rule 8D(1) of the IT Rules, we hold that the disallowance made u/s 14A of the Act would have no legs to stand in the eyes of law. Accordingly, we direct the AO to delete the disallowance of expenses u/s 14A - Grounds No.1, 2 and 3 raised by the assessee for AY 2010-11 are allowed. Chargeability to interest u/s 234C - The law is very well settled that interest u/s 234C of the Act could be done only on the returned income and not on the assessed income. AO is directed accordingly. Chargeability of interest u/s 220(2) - This would be consequential in nature and does not require any specific adjudication. However, AO is directed to charge interest u/s 220(2) of the Act in accordance with law. Incorrect grant of interest u/s 244A on refund - AO is directed to grant interest u/s 244A of the Act in accordance with law.

Summary

Issues involved:
The judgment involves appeals filed against separate orders of the Commissioner of Income Tax for Assessment Years 2010-11 and 2011-12. The main issue is the disallowance of expenses made under section 14A of the Income-tax Act, 1961.

For AY 2010-11:
The appellant challenged the assessment made by the Assessing Officer, specifically disputing the total income assessed and the disallowance of expenses under section 14A. The appellant argued that the disallowance was made without proper recording of satisfaction and incorrect application of rules and judicial precedents. The appellant also contested the computation of tax, interest under sections 234C and 220(2), and interest under section 244A. The Tribunal found that the Assessing Officer failed to record an objective satisfaction as required by law for disallowance under section 14A, thus directing the deletion of the disallowance. The Tribunal also clarified the correct application of interest provisions.

For AY 2011-12:
Similar to the appeal for AY 2010-11, the appellant contested the assessment and disallowance of expenses under section 14A. The Tribunal, after considering the arguments and previous directions, reiterated that the Assessing Officer did not meet the required standard for disallowance under section 14A. Consequently, the disallowance was directed to be deleted, and the interest provisions were clarified. Both parties agreed that the issue raised for AY 2011-12 mirrored that of AY 2010-11, leading to a consistent decision for both assessment years.

Conclusion:
The Tribunal allowed the appeals for both assessment years, directing the deletion of the disallowance of expenses under section 14A and providing clarity on the application of interest provisions. The decision was pronounced in open court on 12th April 2023.