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TMI Blog2014 (10) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had not recorded any satisfaction in the assessment order about the correctness or otherwise of the claim of expenditure made by the assessee in relation to income which does not form part of the total income under the Act for such previous year and hence, there was no reason to apply the provisions of rule 8D for making the disallowance u/s. 14A and accordingly, the entire addition made of Rs. 78,84,361/- may kindly be deleted 2. The facts which are revealed from the record as under. The assessee is engaged mainly in the manufacturing and sale of steel and steel based products, Forgings and Automotive components etc. It is noted by the Assessing Officer that during the year pursuant to a Composite Scheme of Arrangement ("Scheme") between the assessee company and Chakrapani Investments & Trades Ltd., Surajmukhi Investment & Finance Ltd., Gladiolla Investments Limited., and Kalyani Investment Company Limited, as approved by the shareholders and sanctioned by the Hon'ble High Court of Judicature at Bombay, vide its Order dated 1st March, 2010 u/s. 100, 391 and 394 of the Companies Act, 1956, all the assets, liabilities, right and obligations of the "Investment D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the assessee has already disallowed Rs. 5,00,000/- u/s. 14A of the Income-tax Act, 1961 suo moto in its statement of total income, the Assessing Officer disallowed remaining expenditure of Rs. 78,84,361 (i.e. Rs. 83,84,361/- less Rs. 5,00,000/-) u/s. 14A r.w. Rule 8D of the Incometax Act, 1961. 4. In sum and substance by invoking the provisions of Sec. 14A r.w.s. 8D, the Assessing Officer made the net disallowance out of the expenditure claimed by the assessee at Rs. 78,84,361/-. It is already mentioned here-in-above that the assessee suo moto has made the disallowance in the computation itself to the extent of Rs. 5,00,000/-. The CIT(A) confirmed the disallowance made by the Assessing Officer. Now, the assessee is in appeal before us. 5. We have heard the parties. The Ld. Counsel submits that the identical issue has come for the consideration before the Tribunal in the assessee's own case for the A.Y. 2008-09 as the Assessing Officer has made the disallowance by invoking the provisions of Sec. 14A. He submits that in the said year also the assessee has suo moto made the disallowance to the extent of Rs. 5,00,000/- but the Assessing Officer made the disallowance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which does not form part of the total income. Therefore, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because assessee has earned an exempt income. The invoking of rule 8D of the Rules is permissible only when the Assessing Officer records the satisfaction in regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. In other words, section 14A(2) of the Act envisaged a condition precedent for invoking rule 8D of the Rules and computing disallowance thereof only if the Assessing Officer records that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the account of the assessee. In this context, it would be appropriate to refer to the following observations of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) :- "70. Now, in dealing with the challenge it is necessary to advert to the position tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. When a statute postulates the satisfaction of the Assessing Officer "Courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated". (M. A. Rasheed v. State of Kerala [1974] AIR 1974 SC 2249*). A decision by the Assessing Officer has to be arrived at in good faith on relevant considerations. The Assessing Officer must furnish to the assessee a reasonable opportunity to show cause on the correctness of the claim made by him. In the event that the Assessing Officer is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the Assessing Officer when he arrives at his sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of dividends a sum of Rs. 5,45,58,685/-, which is exempt u/s 10(38) of the Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at Rs. 5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing Officer cannot be upheld unless he has complied with the pre-requisite of invoking rule 8D of the Rules, namely, recording of an objective satisfaction with regard to the claim of the assessee that an expenditure of Rs. 5,00,000/- has been incurred in relation to the exempt income, is incorrect. In order to examine the aforesaid compliance with the pre-condition, we have perused the para 4 to 4.2 of the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that "the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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