2017 (9) TMI 1148 - AT - Income Tax

Addition on account of disallowance u/s 14A r.w.r 8D - Held that - By following the law laid down by Hon ble Apex Court in judgment cited as Godrej & Boyce Manufacturing Company Ltd. (2017 (5) TMI 403 - SUPREME COURT OF INDIA) and Maxopp Investment Ltd. (2011 (11) TMI 267 - Delhi High Court) we are of the considered view that the findings returned by AO that, disallowance u/s 14A is to be made even if no exempt income has resulted or earned by the assessee during the year under consideration is no longer a good law in view of the judgment rendered by Hon ble Delhi High Court in Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) and Godrej & Boyce Manufacturing Company Ltd. (supra) wherein it is categorically held that where the assessee has not earned any dividend income forming part of the total income during the year under assessment, section 14A read with Rule 8D is not attracted. AO proceeded to invoke section 14A read with Rule 8D without recording his dis-satisfaction. So, in these circumstances, the ld. CIT (A) by considering all these facts rightly deleted the addition. So, finding no illegality or perversity in the order of the ld. CIT (A), we hereby dismiss the appeal filed by the Revenue.

Summary

Issues:
Disallowance under section 14A read with Rule 8D of the Income-tax Act, 1961.

Analysis:
1. Issue of Disallowance under Section 14A read with Rule 8D:
- The Assessing Officer (AO) observed that the assessee company had shown significant investments in equity shares, leading to scrutiny under section 14A of the Act. The AO computed a disallowance under Rule 8D, resulting in a disallowance of Rs. 62,58,956.
- The Commissioner of Income-tax (Appeals) deleted the disallowance, prompting the Revenue to appeal before the Tribunal. The Revenue argued that the AO's disallowance under Rule 8D was based on the accounts provided by the assessee.
- However, the Tribunal noted that the AO mechanically invoked section 14A read with Rule 8D without recording dissatisfaction, which is impermissible. The Tribunal referred to legal precedents, including the judgment in Maxopp Investment Ltd., emphasizing the need for the AO to reject the claim of the assessee with cogent reasons before determining the disallowance.
- Citing the Supreme Court's decision in Godrej & Boyce Manufacturing Company Ltd., the Tribunal reiterated the requirement for the AO to be satisfied with the claim of the assessee before invoking Rule 8D. The Tribunal concluded that if no exempt income was earned, section 14A read with Rule 8D did not apply. As the AO failed to record dissatisfaction, the Tribunal upheld the CIT(A)'s decision to delete the addition.

This detailed analysis of the judgment highlights the key legal arguments, precedents, and reasoning behind the Tribunal's decision regarding the disallowance under section 14A read with Rule 8D of the Income-tax Act, 1961.