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TMI Blog2016 (10) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... nal has held that non recording satisfaction with regard to the correctness of the claim of the assessee which is a mandatory requirement in terms of section 14A of the Act r.w.r 8D to compute the impugned disallowance is untenable in law. In the assessee’s case also, we find that no satisfaction has been recorded as regard the invoking of the provisions of section 14A r.w.r 8D, and therefore application of section 14A r.w.r.8D is not correct as the necessary satisfaction in terms of section 14A(2) of the Act has not been recorded. Following the ratio laid down in the decision of the Tribunal (supra), we set aside the order of the ld.CIT(A) and direct the AO to delete the addition. This ground is allowed. Disallowance while computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act, 1961(hereinafter called and referred to as the Act) r.w.r.8D of the Income Tax Rules, 1962 (hereinafter called and referred to as Rules) and the ld. CIT(A) also ignored the fact that the AO had not reached appropriate satisfaction regarding the amount disallowed by the appellant of ₹ 2,50,000/-. 5. The ld. Counsel for the assessee, at the outset, submitted that the assessee has received dividend income of ₹ 2,09,85,607/- and made suo mottu disallowance of ₹ 2,50,000/- at the time of filing of the return of income which was not accepted by the AO. However, the ld.counsel submitted that while invoking the provisions of section14A r.w.r 8D, the AO has not recorded any satisfaction on the suo mottu disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Gareware Wall Ropes Limited V Add.CIT(ITA No.5408/Mum/2012; c) M/s JM Financial Limited V/s Addl CIT(ITA No.4521/M/2012 d) CIT V/s Oriental Structural Engineers Pvt Ltd (Delhi High Court) The ld.counsel s last alternative argument is that the temporary deployment of the funds which were lying ideal in the company as the assessee has arranged these funds for the purpose of making capital explanation. On the contrary, the ld. DR heavily relied on the decisions of the authorities below. 6. We have carefully considered the rival submissions and perused the material placed before us including the orders of authorities below. On perusal of the orders, we find that by invoking the provisions of section 14A r.w.r 8D, the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in rule 8D of the Rules. However, the aforesaid empowerment of the Assessing Officer to invoke application of rule 8D of the Rules is superscribed by a condition contained in sub-section (2) of section 14A of the Act which is to the effect that the Assessing Officer, having regard to the accounts of the 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 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 satisfaction under sub- section (2) of section 14A. As we shall note shortly hereafter, sub-rule (1) of rule 8D has also incorporated the essential requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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