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2019 (11) TMI 928 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - suo moto disallowance by assessee - absence of a speaking order by the Assessing Officer - HELD THAT - Assessing Officer can invoke Rule 8D of I.T. Rules only after establishing with detailed reasons, through a speaking order, that the amount disallowed suo moto by the assessee is not satisfactory. The Assessing Officer having failed to do this, there is justification for applying Rule 8D is completely absent. In the absence of a speaking order by the Assessing Officer on why he invoked the jurisdiction under Rule 8D of Income Tax Rules, we are of the view that further disallowance made by the Assessing Officer lacked statutory credentials under section 14A(2) of Income Tax Act.
Issues Involved:
- Disallowance made by Assessing Officer under section 14A of the Income Tax Act Analysis: [A] Grounds of Appeal: The appellant filed an appeal against the appellate order dated 21.10.2015 of the Commissioner of Income Tax (Appeals)-22, New Delhi, challenging the disallowance made under section 14A of the Income Tax Act. The appellant argued that the disallowance was erroneous, unjustified, and bad in law, as no expenses were incurred for earning exempt income. [A.1] Additional Grounds of Appeal: During the appellate proceedings in the Income Tax Appellate Tribunal, the appellant raised concerns regarding the Assessing Officer's failure to record satisfaction before making the disallowance/addition under Section 14A of the Act. The appellant questioned whether the defect of noncompliance could be cured by the Commissioner of Income Tax (Appeals) in the appellate order. [B] Disallowance Issue: The main issue in the appeal was the disallowance made by the Assessing Officer under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The appellant had already made a suo moto disallowance of a certain amount, but the Assessing Officer computed a further disallowance, which the appellant contested as unjust. The Commissioner of Income Tax (Appeals) upheld the disallowance, leading to the appeal before the Income Tax Appellate Tribunal. [C] Arguments and Decision: During the hearing, the appellant argued that Rule 8D of the Income Tax Rules should only be invoked if the Assessing Officer is not satisfied with the correctness of the disallowance made by the assessee. It was contended that the Assessing Officer failed to provide detailed reasons for dissatisfaction with the appellant's claim, as required by Section 14A(2) of the Act. The Tribunal noted that the Assessing Officer's order lacked a detailed explanation for invoking Rule 8D, leading to the conclusion that the further disallowance lacked statutory credentials. Citing relevant case law and legal provisions, the Tribunal held that the Assessing Officer's failure to record satisfaction invalidated the disallowance made, and thus, the further disallowance was deleted. [C.1] Supporting Precedents: The Commissioner of Income Tax (DR) supported the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals), citing various precedents. However, the Tribunal found that the Assessing Officer's failure to provide a detailed explanation for the disallowance rendered it invalid, following the principles outlined in relevant case law and statutory provisions. [C.2] Tribunal's Decision: After considering the arguments and precedents presented by both sides, the Tribunal concluded that the further disallowance made by the Assessing Officer lacked statutory credentials due to the absence of a detailed explanation for dissatisfaction with the appellant's claim. Consequently, the disallowance of a specific amount was deleted, and the appeal was allowed for statistical purposes. This detailed analysis of the judgment highlights the key issues, arguments presented, relevant legal provisions, and the Tribunal's decision in the case.
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