2019 (10) TMI 383 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - whether satisfaction as per the provisions of Section 14A has been recorded or not by the AO? - HELD THAT - Section 14A (2) reads as under 14A(2) - AO shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. In the instant case, we find that there is no tangible material on record, there is no record of examination of accounts as stipulated under section 14A(2), there is no satisfaction recorded by the Assessing Officer in terms of the expenditure claimed by the assessee, and hence keeping in view the provisions of the Act, the process embarked upon by the assessee and the judicial pronouncements, it is hereby held that the re-computation done by the Assessing Officer in the absence of recording of the satisfaction is liable to be set aside. - Decided in favour of assessee. Disallowance of 1/5th of the expenses of Telephone, Mobile and Car expenses - HELD THAT - CIT (A) after careful consideration of the facts of the case and the case laws cited by the Ld. AR before him during the hearings held that the personal use of Car and Telephone cannot be ruled out in the case of the assessee in the absence of day to day details with regard to use of telephone and car and held that the disallowance made by the Assessing Officer are very reasonable and cannot be said to be excessive under any circumstances. AR has taken the arguments that have been taken before the Ld. CIT(A) which the Ld. CIT(A) has duly considered and distinguished the case laws. Having gone through the issue in detail, in the peculiar facts and circumstances of the instant case, we hereby decline to interfere with the order of the Ld. CIT(A) on this issue. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of expenses under Section 14A read with Rule 8D.
2. Disallowance of 1/5th of telephone, mobile, and car expenses.
3. Disallowance of interest expenses.
4. Applicability of Rule 8D and satisfaction of the Assessing Officer.

Detailed Analysis:

1. Disallowance of Expenses under Section 14A Read with Rule 8D:

The primary issue across all appeals was the disallowance of expenses under Section 14A read with Rule 8D. The Assessing Officer made additions to the returned income of the assessees, disallowing expenses related to earning exempt income, specifically dividend income. The assessees argued that the Assessing Officer did not record proper dissatisfaction as mandated by Section 14A(2) before invoking Rule 8D. They contended that the disallowance was made without any logical correlation to the investments and that the Assessing Officer did not examine their accounts adequately. The CIT(A) upheld the disallowance, stating that the Assessing Officer had implicitly recorded dissatisfaction and that there was no requirement for a specific format of language for such dissatisfaction. The Tribunal, however, found that there was no tangible material or proper examination of accounts by the Assessing Officer to justify the dissatisfaction, leading to the setting aside of the re-computation done by the Assessing Officer.

2. Disallowance of 1/5th of Telephone, Mobile, and Car Expenses:

In ITA Nos. 562/CHD/2017 and 1085/CHD/2017, the issue of disallowance of 1/5th of telephone, mobile, and car expenses was raised. The CIT(A) upheld the disallowance, reasoning that personal use of these assets could not be ruled out in the absence of detailed records. The Tribunal agreed with the CIT(A), noting that the disallowance was reasonable given the circumstances and the lack of detailed usage records.

3. Disallowance of Interest Expenses:

In ITA No. 1085/CHD/2017, the issue of disallowance of interest expenses amounting to ?18,434 was raised. The assessee argued that the advances were made from their own funds and reserves, and were for business purposes. The CIT(A) upheld the disallowance, but this specific issue was not elaborated upon in the Tribunal's final decision.

4. Applicability of Rule 8D and Satisfaction of the Assessing Officer:

A significant point of contention was whether Rule 8D was automatically applicable and whether the Assessing Officer's dissatisfaction was properly recorded. The CIT(A) held that the provisions of Section 14A read with Rule 8D were applicable even if no exempt income was received, based on CBDT Circular No. 5 of 2014. The Tribunal, however, emphasized that the Assessing Officer must record clear dissatisfaction with the assessee's claim before applying Rule 8D. The Tribunal found that the Assessing Officer did not record such dissatisfaction adequately, leading to the setting aside of the disallowance.

Conclusion:

The Tribunal partially allowed the appeals, setting aside the disallowance under Section 14A read with Rule 8D due to the lack of recorded dissatisfaction by the Assessing Officer. However, it upheld the disallowance of 1/5th of telephone, mobile, and car expenses, agreeing with the CIT(A) that personal use could not be ruled out. The issue of disallowance of interest expenses was not specifically addressed in the Tribunal's final decision.