2023 (7) TMI 672 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - claim of the assessee that it has incurred NIL expenses for earning exempt income - necessity of recording satisfaction by AO - HELD THAT - A perusal of the assessment order shows that nowhere the AO has recorded any satisfaction nor there is any finding in respect of correctness of the claim of the assessee that it has incurred NIL expenses for earning exempt income. As decided in Maxopp Investment Vs. CIT 2018 (3) TMI 805 - SUPREME COURT applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance u/s 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the purchasing the shares/making the investment in shares is to be examined by the AO - We direct AO to delete the addition - Decided in favour of assessee.

Summary

Issues involved:
The appeal pertains to the disallowance of Rs. 23,08,947 made by the Assessing Officer under section 14A of the Income-tax Act, 1961 r.w.r 8D of the Rules for Assessment Year 2015-16.

Facts of the case:
The assessee company is involved in manufacturing seamless ERW Pipes and Tubes, Wind Power Generation, and trading of Pipes and Tubes. During assessment proceedings, the Assessing Officer questioned the assessee regarding the disallowance under section 14A r.w.r 8D of the Act concerning investments made by the company.

Contentions:
The assessee contended that no disallowance should be made under section 14A of the Act, emphasizing that the Assessing Officer did not verify the correctness of the claim that no expenses were incurred for earning tax-free income. The assessee argued that reliance on Circular No. 5/2014 without recording satisfaction was improper.

Decision:
The Tribunal noted that the Assessing Officer did not record any satisfaction regarding the claim of the assessee that no expenses were incurred for earning exempt income. Citing a judgment, the Tribunal emphasized that the assessing officer must verify the correctness of the claim and cannot determine the amount of expenditure for section 14A if satisfied with the assessee's claim. Therefore, the Tribunal directed the Assessing Officer to delete the disallowance.

Conclusion:
The appeal of the assessee was allowed, and the impugned addition of Rs. 23,08,947 was directed to be deleted based on the failure of the Assessing Officer to verify the claim of the assessee regarding expenses for earning exempt income.