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2021 (1) TMI 1046 - HC - Income TaxAddition u/s 14A read with Rule 8D - Appellant has not made any claim that it has not incurred any expenditure for earning the exempt income - as argued assessing officer has not arrived at the mandatory satisfaction as required under section 14A and hence no disallowance is possible - HELD THAT - AO has not determined the amounts of the expenditure and has not recorded any reasons with regard to correctness of the claim made by the assessee in respect of such expenditure, in relation to the income which does not form part of the total income of the assessee. AO before embarking upon determination of the amount of expenditure incurred in the light of the exempted income, has to record a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The aforesaid mandatory requirement has not been fulfilled by the Assessing Officer before disallowing the assessee under Section 14A - Decided in favour of assessee.
Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Correctness of the claim of the assessee in respect of expenditure. Analysis: 1. The appeal was filed by the assessee under Section 260-A of the Income Tax Act, 1961, challenging the addition of ?24,95,846/- made under section 14A read with Rule 8D. The key issue was whether the Tribunal was justified in confirming the disallowance without the Assessing Officer first rejecting the claim of the assessee regarding the extent of expenditure for earning exempt income. The appellant contended that the mandatory requirement under Section 14A was not fulfilled by the Assessing Officer, as there was no rejection of the claim with cogent reasons. The appellant relied on the Supreme Court decision in 'MAXOPP INVESTMENT LTD. Vs. COMMISSIONER OF INCOME- TAX' to support their argument. The revenue argued that all authorities under the Act rightly disallowed the claim, as seen in Paragraphs 10 and 11 of the Tribunal's order. 2. The assessee, a District Central Co-operative Bank, filed the return of income for the Assessment Year 2009-10, declaring an income of ?3,80,29,000/-. The Assessing Officer disallowed ?24,95,846/- under Section 14A, leading to the appeal. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the disallowance, prompting the assessee to file the current appeal. The relevant provision of Section 14A was examined, emphasizing that the Assessing Officer must be unsatisfied with the correctness of the claim of the assessee before determining the expenditure incurred in relation to exempt income. The Assessing Officer's failure to fulfill this requirement was highlighted, indicating a lack of proper reasoning for disallowance. 3. The order of the Assessing Officer did not demonstrate a rejection of the claim of the assessee with regard to disallowance under Section 14A. The Assessing Officer's calculation method for disallowance was based on Rule 8D, but the crucial step of being unsatisfied with the correctness of the claim was missing. As per the provisions of Section 14A, the Assessing Officer must first establish this dissatisfaction before proceeding to determine the amount of expenditure incurred. In light of the inadequate reasoning provided by the Assessing Officer, the substantial questions of law were answered in favor of the assessee, leading to the quashing of the orders related to the disallowance under Section 14A. 4. The judgment concluded by allowing the appeal and quashing the orders of the Assessing Officer, the Commissioner of Income Tax (Appeals), and the Tribunal concerning the disallowance under Section 14A of the Income Tax Act, 1961. The decision was based on the failure of the Assessing Officer to meet the mandatory requirement of being unsatisfied with the correctness of the claim before disallowing the assessee under Section 14A.
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