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TMI Blog2020 (11) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... y the ld AO are confirmed. 2. The assessee has preferred the following grounds of appeal:- "1. That the Commissioner of Income Tax (Appeals) ["CIT(A)"] erred on facts and in law in upholding disallowance to the extent of Rs. 1,73,455 under section 14A of the Income Tax Act, 1961 ("the Act"), against suo-motu disallowance of Rs. 50,000 made by the appellant. 1.1 That the C1T(A) erred on facts and in law in upholding the action of the assessing officer in computing disallowance by invoking provisions of Rule 8D of the Income Tax Rules, 1962 ("the Rules‟), without appreciating that conditions precedent for applying provisions of the said Rule, including recording of satisfaction, were not satisfied. 1.2 That the CIT(A) failed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant in earlier years on account of commercial expediency out of own funds and not out of interest bearing borrowed funds. 2.4 Without prejudice, that the CIT(A)/ assessing officer erred on facts and in law in not netting off interest income earned with interest paid by the appellant. 2.5 Without prejudice, that the CIT(A)/ assessing officer erred on facts and in law in disallowing interest expenditure twice inasmuch as the same was considered while computing disallowance under section 14A of the Act r.w.s Rule 8D of the Rules and was again disallowed alleging diversion of borrowed funds to sister concerns." 3. Brief facts of the case shows that the assessee is a member of National Stock Exchange and Bombay Stock Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in administrative indirect cost must have been incurred. Therefore, he computed the disallowances u/s 14A of under Rule 8D of Rs. 354198/-. Thus, disallowance of Rs. 304198/ was made. The assessee challenged the same before the ld CIT (A) who rejected the disallowance to the extent of dividend earned of Rs. 173455/ following the decision of the Hon'ble Delhi High Court in case of Joint Investment Pvt. Ltd Vs. CIT. The assessee is aggrieved with that. 5. The ld AR submitted that the ld AO has not recorded the satisfaction to the correctness of the claim of the assessee that no expenditure has been incurred to earn any exempt income and further suo motto disallowance offered of Rs. 50,000/ is how incorrect , without doing so, the ld AO could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D of the Income Tax Rules for disallowances u/s 14A of the Act. This is against the mandate of the provisions of section 14A(2) of the Act. The recording of the satisfaction about the correctness of the claim of the assessee with respect examination of accounts is the primary conditions to invoke any disallowance u/s 14A of the Act. The several judicial precedents relied upon before us also held so. In view of this, as the ld AO has failed to record any satisfaction with respect to the correctness of claim of the assessee of not incurring any expenditure to earn exempt income , on examination of the account, the disallowance made by the ld AO and disallowance restricted by the ld CIT(A) cannot be upheld. Accordingly, we direct the ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances to its sister concern without any commercial expediency or business purposes and hence, he confirmed the disallowances. 9. The ld AR adverting to ground No. 2, submitted that complete details of the interest expenditure were provided and stated that the major interest expenditure of Rs. 24.36 lakhs is for working capital need for the business of the assessee. Even otherwise he submitted that the assessee has earned interest income of Rs. 4385941/- and expenditure is for RS 2677324/- therefore, it has offered net interest income for taxation. It was also stated that majority of the loans were advanced in earlier years and not during the year. He further submitted that as on 31.01.2011 the assessee has interest free funds in share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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