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2022 (11) TMI 1302 - HC - Income TaxDisallowance u/s 14A - necessity of recording satisfaction - as argued AO has failed to record proper satisfaction before rejecting the explanation offered for the disallowance made by the Assessee itself and proceeding to make the disallowance u/s 14A read with Rule 8D(2)(iii) - HELD THAT - AO recorded his dissatisfaction with the computation of disallowance after examining the accounts of the Assessee. Section 14A read with Rule 8D(2)(iii) prescribes the method to be applied for determining the expenditure incurred for earning exempt income. AO and the appellate authorities, in the facts of this case, cannot be faulted for applying the statutory method for determining the expenditure and rejecting the Assessee s suo moto disallowance. Dissatisfaction of the AO is expressly recorded in the assessment order. The said dissatisfaction has been upheld by the appellate authorities after perusing the records of the Assessee. We do not find any merit in the submission of the Appellant that the AO has failed to record satisfaction. The Assessee has failed to point out any error in the findings of the appellate authorities except to state that the disallowance offered by the Assessee should be accepted as it was done in AY 2008-09 and AY 2009-10 on the principle of consistency. In this regard, we observe that this Court in its decision for AY 2008-09 while setting aside the deletion under Section 14A has not upheld the self devised method adopted by Assessee for making the allowance but adjudicated on the failure of the AO to record his proper satisfaction before invoking Section 14A. We have already rejected the submission of application of principle of consistency and further, held that the disallowance offered by the Assessee in the assessment years under consideration being on an ad-hoc basis has been rightly rejected by the AO. We, therefore, do not find any reason to interfere with the said concurrent findings of the appellate authorities. A perusal of the record reveals that the AO has applied his mind to the controversy as he firstly examined accounts, secondly duly invited the reply of the Assessee to explain the basis of the disallowance offered by the Assessee and thirdly after examining the explanation of the Assessee has recorded its dissatisfaction after observing that the basis adopted by the Assessee for making such an estimate was unclear. CIT(A) and ITAT, which are the fact finding authorities upon examination of record, have concurred with the said finding of dissatisfaction of the AO. No substantial question of law arises.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 for AY 2012-13 and AY 2013-14. 2. Recording of proper satisfaction by the Assessing Officer (AO) under Section 14A(2) of the Act. 3. Inclusion of strategic investments in subsidiaries for the purpose of disallowance computation. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A: - AY 2012-13: The Assessee declared an income of Rs. 198,88,65,682/- and claimed Rs. 5,80,00,000/- as exempt dividend income under Section 10(34). The Assessee disallowed Rs. 1,00,000/- as administrative expenses under Section 14A. The AO, dissatisfied with this disallowance, calculated Rs. 1,44,85,000/- under Rule 8D(2)(iii). The CIT(A) restricted the disallowance to Rs. 26.70 Lakhs, excluding investments in subsidiaries. The Tribunal, following the Supreme Court's judgment in Maxopp Investment Ltd. vs. CIT, included subsidiary investments, resulting in a disallowance of Rs. 55,12,500/-. - AY 2013-14: The Assessee earned Rs. 7.04 Crores as dividend income and disallowed Rs. 9,75,000/-. The AO determined Rs. 11,550,027/- under Rule 8D(2)(iii). The CIT(A) reduced it to Rs. 23.46 Lacs, excluding subsidiary investments. The Tribunal upheld the AO's inclusion of subsidiary investments, directing a recomputation of disallowance. 2. Recording of Proper Satisfaction: - The Assessee argued that the AO did not record proper satisfaction as required under Section 14A(2), citing a similar issue in AY 2008-09 where the disallowance was deleted due to lack of satisfaction. The AO, however, had examined the accounts and found the Assessee's disallowance of Rs. 1,00,000/- unsatisfactory, leading to the application of Rule 8D(2)(iii). The Tribunal and CIT(A) upheld the AO's dissatisfaction and the method used for disallowance. 3. Inclusion of Strategic Investments in Subsidiaries: - The Tribunal included strategic investments in subsidiaries for disallowance computation, following the Supreme Court's judgment in Maxopp Investment Ltd. vs. CIT. The Assessee's challenge against this inclusion was dismissed, as the Tribunal's decision was consistent with the Supreme Court's ruling. Arguments of the Assessee: - The Assessee contended that the AO did not record proper satisfaction and that the suo moto disallowance should be accepted. It argued that the method used in AY 2008-09 should apply on the principle of consistency. The Assessee also claimed negligible administrative expenses and provided a method of cost allocation based on the ratio of exempt income to gross turnover. Arguments of the Revenue: - The Revenue argued that the AO recorded proper satisfaction and that the Tribunal upheld this in previous years (AY 2010-11 and AY 2011-12). The Revenue contended that the disallowance under Section 14A read with Rule 8D was upheld by the Tribunal and CIT(A). Analysis by the Court: - The Court found the Assessee's claim of consistency incorrect, noting that the method used in AY 2008-09 was not upheld in subsequent years. The Court observed that the AO had recorded dissatisfaction with the Assessee's disallowance and that this was upheld by the appellate authorities. The Court noted that the Assessee's method of disallowance was on an ad-hoc basis and not borne out from the records. The Court upheld the AO's application of Rule 8D(2)(iii) and dismissed the Assessee's appeals, finding no substantial question of law. Conclusion: - The appeals were dismissed, with the Court affirming the AO's and appellate authorities' findings on disallowance under Section 14A read with Rule 8D(2)(iii) and the inclusion of strategic investments in subsidiaries for disallowance computation. The Court confirmed that proper satisfaction was recorded by the AO before making the disallowance.
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