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TMI Blog2017 (11) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... order and directing the Assessing Officer to recalculate the disallowance u/s14A of the Act. 4. The appellant craves leave to amend, alter, modify, substitute, add or and/or rescind any or all of the above grounds." 3. The brief facts qua the issue are that the assessee company is a PSU under Ministry of Heavy Industries and Public Enterprises. It is a Holding Company with 4 subsidiaries. As a Holding Company, it provides services to its subsidiaries in the area of financial management including disbursement of Government fund, engineering, technical, commercial and personnel disciplines and export of goods. The assessee also directly executes the export order and construction order. The assessee-company filed its return for the Assessment Year 2010-11 on 17.09.2010 declaring a total income of Rs. 32,70,296/-. The return was processed U/s.143(1) on 22.07.2011. Later on, the assessee`s return was selected for scrutiny u/s.143(2) of the Act and the Assessing Officer completed the assessment by making addition u/s.14A read with Rule 8D at Rs. 7,75,481/-. The assessee company has earned dividend income of Rs. 7,67,404/- which is exempted, under the Income Tax Act. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come at Rs. 99.29 lakhs. But the AO in his footnote in the computation, had clearly mentioned that he disallowed Rs. 7,67,500/- being expenses not directly attributable to the taxable income. That is, as per AO amount of Rs. 7,67,500/- was not attributable to the taxable income of the assessee therefore he disallowed the same. The assessee has claimed total expenses under the head 'Other expenses' of Rs. 84.54 lakhs in its P & L A/c. The Assessing Officer on an independent analysis of the books of accounts, considering the nature of business of the assessee company and on a scrutiny of the Schedule "Other Expenses" amounting to Rs. 88.54 lakhs figured out that out of total expenses of Rs. 88.54 lakhs claimed in the P/L A/c., an amount of Rs. 80.87 lakhs is directly attributable to earning of taxable income i.e. expenses which conveys a direct nexus with the taxable income and hence excluded the same in the computation of disallowance u/s 14A of the Act and thus arrived at a figure of Rs. 7,67,500/- (88.54 - 80.87) to be disallowed under this provision. The Assessing Officer has consciously and having regard to the accounts of the assessee company arrived at the figures of Rs. 80.87 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs for the purpose of subsequent discussion. The ld Counsel produced before us Schedule-19 of the Balance Sheet, which contains the details of 'other expenses' and explained us that in the said details of 'other expenses' of Rs. 84.54 lakhs, not even a single expense relates to exempted income. That is, there was no any expenditure in these details ('other expenses' of Rs. 84.54 lakhs) which is attributable to section 14A of the Act. The Assessing Officer had disallowed Rs. 7,67,500/- based on conjecture and surmise. In the said detail of 'other expenses' of Rs. 84.54 lakhs, the assessee has not shown Directors` Salary and staff salary who normally looks after the investment portfolio of the Company, therefore there is no any expenditure in the said detail of 'other expenses' which relate to exempted income. All expenses shown in the said detail of 'other expenses' relate to normal business of the assessee. Section 14A r.w.r. 8D talks about the expenses which relate to exempt income but in fact the expenses incurred by the assessee, which is shown in the Schedule 19 - 'Other Expenses', were related to the assessee's normal business. Again the ld. Counsel has submitted that Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction can be reached and recorded only when the claim of the assessee is verified. lf the assessee proves before the AO that it incurred a particular expenditure in respect of earning the exempt income and the AO gets satisfied, then there is no requirement to still proceed with the computation of amount disallowable as per Rule 8D. From the assessment order, it is observed that the Assessing Officer simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule 8D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course adopted by the Assessing Officer. The correct sequence, in our considered opinion, for making any disallowance u/s.14A is to, firstly, examine the assessee's claim of having incurred some expenditure or no expenditure in relation to exempt income if the Assessing Officer gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the Assessing Officer is not satisfied with the correctness of the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable on record with regard to the disallowance U/s 14A, the assessee submitted the details of 'Other expenses' in Schedule-19 and the AO made the required inquiries in respect of amount of Rs. 84.54 Lakhs. That is, during the assessment proceedings the assessee has submitted the details of 'other expenses' of Rs. 84.54 lakhs and details relating to exempt income and the expenses incurred in relation to exempt income. The assessee had suo moto disallowed the expenses directly relating to exempt income at Rs. 7,981/-. For making any disallowance u/s.14A is to, firstly, examine the assessee's claim of having incurred some expenditure or no expenditure in relation to exempt income if the Assessing Officer gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of Rule 8D will operate. In the assessee`s case under consideration, the Assessing Officer has satisfied about the expenditure in relation to exempt income, he has every k ..... 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