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2024 (5) TMI 491 - AT - Income TaxDisallowance u/s 14A - Mandation to record satisfaction - assessee has computed a suo moto disallowance of administrative cost and Demat charges - HELD THAT - According to Section 14A (2) of the Act it is the duty of the AO to first record his satisfaction that why the claim of the assessee is not correct according to him on verification of the accounts of the assessee. There is no whisper in the assessment order about examination of claim of the assessee holding such claim as not correct on examination of accounts of the assessee. Thus The AO has failed to record his satisfaction as provided under that section. Thus without recording of the satisfaction about the correctness of the claim of the assessee the learned Assessing Officer does not have any authority to compute the disallowance by application of Rule 8D. The learned CIT (A) is also incorrect in holding that the learned Assessing Officer has recorded any satisfaction as provided under Section 14A (2) of the Act. Decided in favour of assessee. Charging of interest u/s 234D - HELD THAT - We direct the AO to verify whether the provision of Section 234D is applicable or not in this case and if no such interest is chargeable delete the demand of interest to that extent.
Issues Involved:
1. Disallowance u/s 14A of the Act for A.Y. 2014-15 and A.Y. 2016-17. 2. Charging of interest u/s 234D of the Act for A.Y. 2016-17. Summary: 1. Disallowance u/s 14A of the Act for A.Y. 2014-15: The assessee, Piem Hotels Limited, filed its return of income on 29th November 2014, declaring an income of Rs. 55,31,90,420/-. The Assessing Officer (AO) selected the case for scrutiny and noted that the assessee made a suo moto disallowance of Rs. 24,23,717/- u/s 14A of the Act. However, the AO, applying Rule 8D, computed a higher disallowance of Rs. 57,96,654/-, resulting in an additional disallowance of Rs. 37,30,672/-. The CIT (A) confirmed the AO's order. The assessee contended that the AO did not record his satisfaction before invoking Rule 8D, as required by law. The Tribunal found that the AO failed to record his dissatisfaction with the assessee's claim, as mandated by Section 14A(2). Citing the Bombay High Court's decision in Tata Capital Limited, the Tribunal held that the AO's failure to record satisfaction invalidated the disallowance. Consequently, the Tribunal reversed the lower authorities' orders and directed the deletion of the disallowance. 2. Disallowance u/s 14A of the Act for A.Y. 2016-17: For A.Y. 2016-17, the assessee filed its return on 29th November 2016, declaring an income of Rs. 40,62,06,850/-. The AO noted a suo moto disallowance of Rs. 25,48,734/- u/s 14A of the Act but, applying Rule 8D, computed a higher disallowance of Rs. 43,49,790/-, resulting in an additional disallowance of Rs. 22,69,014/-. The CIT (A) confirmed the AO's order. The Tribunal found that the AO failed to record his dissatisfaction with the assessee's claim, as required by Section 14A(2). Citing the Bombay High Court's decision in Tata Capital Limited, the Tribunal held that the AO's failure to record satisfaction invalidated the disallowance. Consequently, the Tribunal reversed the lower authorities' orders and directed the deletion of the disallowance. 3. Charging of interest u/s 234D of the Act for A.Y. 2016-17: The assessee contested the charging of interest u/s 234D amounting to Rs. 99,864/-. The Tribunal directed the AO to verify the applicability of Section 234D and, if not applicable, to delete the interest demand accordingly. Conclusion: The Tribunal partly allowed the appeals for both A.Y. 2014-15 and A.Y. 2016-17, directing the deletion of disallowances made u/s 14A and instructing the AO to verify and potentially delete the interest charged u/s 234D for A.Y. 2016-17.
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