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2017 (9) TMI 379 - AT - Income TaxDisallowance made u/s. 14A - expenses related to earning of income on which tax is not payable in the eyes of law - Held that - Disallowance out of expenses incurred by the assessee in the course of his practice as a Senior Advocate is not sustainable as at no stage it has been said that the authorities found any dissatisfaction as regards the correctness of the claim made by the assessee. In view of above, no disallowance under section 14A is sustainable in the eyes of law. We further find considerable cogency in the assessee s counsel submission that the issue in dispute is squarely covered by the ITAT, G Bench, New Delhi decision passed in assessee s own case for the AY 2008-09 2016 (12) TMI 864 - ITAT DELHI wherein same held. - Decided in favour of assessee.
Issues:
1. Disallowance under section 14A of the Income Tax Act. 2. Contradiction between AO's order and ITAT Delhi Benches' decision. 3. Justification of disallowance and treatment of expenses as personal expenses. 4. Appeal against orders of lower authorities. Analysis: Issue 1: Disallowance under section 14A of the Income Tax Act The Assessee filed an appeal against the disallowance of &8377; 5,72,868 under section 14A, which was higher than the &8377; 1,25,963 computed by the Assessee. The Assessing Officer (AO) determined the disallowance based on heavy investments made for earning exempt income, considering various expenses incurred. The AO applied Rule 8D of the Income Tax Rules, 1962, to calculate the disallowance. However, the Tribunal found that no disallowance was sustainable as the authorities did not question the correctness of the Assessee's claim. The Tribunal also noted that the issue was covered by a previous decision in the Assessee's favor. Issue 2: Contradiction between AO's order and ITAT Delhi Benches' decision The Assessee argued that the AO's order contradicted a decision by ITAT Delhi Benches in another case, where it was held that satisfaction must be recorded before invoking Rule 8D. The Assessee contended that the AO's order did not comply with this requirement, making it unsustainable. The Tribunal agreed with the Assessee's argument and ruled in favor of the Assessee based on the precedent set by the ITAT Delhi Benches. Issue 3: Justification of disallowance and treatment of expenses as personal expenses The AO justified the disallowance under section 14A by considering various expenses related to managing a large investment portfolio. However, the Assessee argued that these expenses were incurred in the course of professional practice as a Senior Advocate and should not be treated as personal expenses. The Tribunal found merit in the Assessee's argument, stating that no dissatisfaction was found regarding the correctness of the Assessee's claim. The Tribunal, following precedent, deleted the disallowance and allowed the Assessee's appeal. Issue 4: Appeal against orders of lower authorities The Assessee appealed against the orders of the lower authorities, challenging the disallowance under section 14A. The Tribunal, after considering the arguments of both parties and examining the records, allowed the Assessee's appeal, concluding that the disallowance was not sustainable and should be deleted. The Tribunal upheld the Assessee's contentions and ruled in favor of the Assessee. In conclusion, the Tribunal allowed the Assessee's appeal, deleting the disallowance made under section 14A of the Income Tax Act based on the lack of dissatisfaction with the Assessee's claim and the precedent set by previous decisions.
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