2018 (9) TMI 598 - AT - Income Tax

Disallowance u/s 14A - non recording of satisfaction by AO - interest free funds available with the assessee - Held that - Hon ble Supreme Court in the case of Maxopp Investment Ltd. (2018 (3) TMI 805 - SUPREME COURT OF INDIA) has categorically held that before applying the provisions of section 14A read with Rule 8D, the Assessing Officer needs to record satisfaction as to how the suo motu disallowance, if any, made by the assessee was not correct. On merits also we find that interest free funds available with the assessee for assessment year 2008-09 were ₹ 15.74 crore whereas in assessment year 2010-11 the figure of interest free funds is ₹ 18.04 crore. As against these interest free funds, the value of investments in shares is only ₹ 88,85,839/-. These figures are verifiable from the copy of balance sheet of the assessee for the assessment years as placed. Hon ble Delhi High Court in the case of PCIT vs. Sintex Industries Ltd. (2017 (5) TMI 1160 - GUJARAT HIGH COURT) has held that where assessee had surplus funds against which minor investment was made, no question of making any disallowance or expenditure in respect of interest and administrative expenses u/s 14A arose - Decided in favour of assessee

Summary

Issues:
Confirmation of disallowance u/s 14A of the I.T. Act by learned CIT(A) in separate orders.

Analysis:
The appeals were filed against the orders of learned CIT(A)-II confirming disallowances of specific amounts under section 14A of the I.T. Act. The common issue in both appeals was the action of the learned CIT(A) in confirming the disallowances. The Assessing Officer had made disallowances without recording proper satisfaction as required by law and relevant judgments. The appellant argued that the Assessing Officer did not follow the necessary procedures and cited legal precedents to support their case. They contended that no disallowance was warranted as they had surplus funds exceeding the investments, supported by detailed financial figures. The appellant also referenced specific case laws to strengthen their argument.

The Dispute Resolution member relied on the orders of the authorities below. The Tribunal found that the Assessing Officer had made disallowances without proper satisfaction as mandated by law and relevant judgments. The Tribunal cited the judgment in the case of Maxopp Investment Ltd. which emphasized the need for the Assessing Officer to record satisfaction regarding the correctness of the assessee's claim before making disallowances under section 14A. The Tribunal also referred to the judgment of the Hon'ble Allahabad High Court, which highlighted the requirement for the Assessing Officer to be unsatisfied with the correctness of the assessee's claim before making disallowances. On merits, the Tribunal observed that the interest-free funds available to the assessee far exceeded the investments, citing a relevant case law to support their conclusion. Based on the facts, circumstances, and legal precedents, the Tribunal allowed the appeals of the assessee.

In conclusion, the Tribunal allowed both appeals of the assessee based on the lack of proper satisfaction by the Assessing Officer, as required by law and relevant judgments. The Tribunal emphasized the importance of recording satisfaction before making disallowances under section 14A and referenced legal precedents to support their decision. The Tribunal also considered the surplus funds of the assessee compared to the investments to rule in favor of the appellant. The appeals were allowed in light of the facts, circumstances, and legal principles presented during the proceedings.