2014 (12) TMI 260 - HC - Income Tax

Correctness of claim to be recorded by AO u/s 14A - Whether the Tribunal was right in holding that the AO had accorded implicit satisfaction u/s 14A(2) which got converted into explicit satisfaction by the reason on discussion in the order passed by the CIT(A) - Held that - In Maxopp Investment Ltd. versus CIT 2011 (11) TMI 267 - Delhi High Court it was held that sub-section (2) to Section 14A mandates and requires the AO to record his satisfaction on the correctness of the claim made by the assessee in respect of the expenditure in relation to the income, which does not form part of the total income before embarking on and applying Rule 8D of the Income Tax Rules, 1962 - during the course of remand proceedings, the AO will go into the question of disallowance u/s 14A of the Act made by the assessee and after examination, if he is not satisfied with the claim, he can proceed as per law - the observations of the Tribunal that there was implicit satisfaction of the AO and explicit satisfaction of the CIT(A) is to be set aside though it was kept open to the AO to examine the claim of the assessee as per Section 14A of the Act and proceed in accordance with law - Decided in favour of assessee.

Summary

Issues:
Interpretation of Section 14A of the Income Tax Act, 1961 regarding satisfaction requirement by the Assessing Officer.

Analysis:
The High Court addressed the substantial question of law related to the assessment year 2008-09, focusing on whether the Income Tax Appellate Tribunal correctly held that the Assessing Officer had provided implicit satisfaction under Section 14A(2) of the Income Tax Act, which was later converted into explicit satisfaction by the Commissioner of Income Tax (Appeals). Section 14A prohibits deduction of expenditure related to income not forming part of the total income, and it mandates the Assessing Officer to determine such expenditure if not satisfied with the assessee's claim. The Court referred to the interpretation of this provision by the Delhi High Court and the Bombay High Court in previous cases, emphasizing the necessity for the Assessing Officer to record satisfaction before applying Rule 8D of the Income Tax Rules.

The appellant argued that the Assessing Officer did not record the required satisfaction under Section 14A(2) in the order sheet or assessment order. The Tribunal acknowledged this but found implicit satisfaction, while the Commissioner of Income Tax (Appeals) explicitly recorded satisfaction. Consequently, the Tribunal remanded the case to the Assessing Officer for further examination. The appellant's counsel stated that the Assessing Officer could reassess the disallowance of expenditure during the remand proceedings, indicating a pending matter from previous years.

The Court acknowledged the appellant's statement and decided not to delve into the issue of implicit satisfaction by the Assessing Officer or the Commissioner of Income Tax (Appeals), deeming it unnecessary for the current appeal. The Court accepted the concession made by the appellant's counsel, setting aside the Tribunal's findings on implicit and explicit satisfaction. The Assessing Officer was granted the authority to review the assessee's claim under Section 14A and proceed accordingly, leading to the disposal of the appeal without costs.