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TMI Blog2019 (9) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ny expenses to earn tax free income. AO before making said addition has simply referred to the relevant provisions and judgment of Hon'ble Supreme Court in the case of CIT vs United General Trust Ltd. [ 1993 (2) TMI 96 - SC ORDER] which cannot be applied to the instant case as the facts of the present case are totally different from the above case. No merit in the disallowance so made U/s 14A - decided in favour of assessee - ITA No. 72/JP/2018 - - - Dated:- 20-8-2019 - Shri Ramesh C Sharma, Accountant Member For the Assessee : Shri Mahendra Gargieya (Adv) For the Revenue : Shri Rajendra Jha (Addl.CIT) ORDER PER: R.C. SHARMA, A.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no dispute to the well settled legal proposition that the provisions of Section 14A r.w.r. 8D of the IT Rules, 1962 cannot be invoked in a mechanical way by the A.O.. The A.O. is required to determine the amount of expenditure incurred in relation to such income which does not form part of total income under the Act and in accordance with Rule 8D. If the A.O. having regard to the account, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to such exempt income he is empowered for making disallowance as per Rule 8D of the Rules. However, in the instant case, there is no such satisfaction to the A.O. with regard to the correctness of the claim of the assessee that no expenditure was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en observed by this Court in Radhasoami Satsang v. CIT [19921193 ITR 321/60 Taxman 248 (SC). We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings 6. The Coordinate Bench in the case of M/s Ruby Merry Enterprises (P) Ltd. Vs JCIT (Osd) in ITA Bo. 474/JP/2015 vide order dated 14/10/2016 at para 3 has held as under: 3. I heard the rival submissions and carefully considered the same along with orders of tax authorities below. I noted that the AO noted that the assessee had paid interest @ 9% on the investment made against the share application money. The bank statement of the assessee revealed that the payment of ₹ 80,00,000/- was made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to apply sub-section (2) in a case where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income. In this case I noted that even though the AO has made the disallowance by relying on the provisions of section 14A but he did not comply with the conditions as stipulated in section 14A(2). He has not recorded any satisfaction with regard to the incorrectness of claim of the assessee having regard to the accounts of the assessee having no such evidence or material brought to my notice by the Id. D/R which may show that the AO has given a finding on the basis of accounts maintained by the assessee that he is not satisfied with the claim of the assessee. Even the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed funds were utilized for making investment and wherefrom the exempt income is earned. In our considered view, the provisions of section 14A of the Act read with rule 8D of Income Tax Rules, cannot be invoked in mechanical way by AO. As per section 14A(2), the AO is required to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act and in accordance with rule 8D of Income Tax Rules, 1962 if the AO having regard to the accounts, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to such exempt income, is empowered for making disallowance as per rule 8D. In the case in hand, no finding is recorded by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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