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| The Tax Publishers2019 TaxPub(DT) 7233 (Mum-Trib) INCOME TAX ACT, 1961
Section 14A
It was quite clear that AO was not satisfied with the claim of assessee and having regard to accounts of assessee, had arrived at a finding that it was not possible to generate requisite satisfaction with regard to correctness of claim of assessee. Only thereafter, AO made disallowance under section 14A read with rule 8D. Therefore, assessee's contentions that no satisfaction had been recorded by AO in an objective manner was unacceptable. However, AO was directed to consider only those investments for computing average value of investment which yielded exempt income during the year.
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Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D - Assessee pleading non-recording of satisfaction by AO
Assessee earned tax free dividend income but claimed no disallowance under section 14A. AO required assessee to explain as to why disallowance under section 14A read with rule 8D should not be made. Assessee submitted that assessee carried out business of share trading and derivative trading and dividend income earned was incidental to business of assessee and borrowing made were not for the purpose of earning dividend. Further, expenditure incurred towards earning dividend income and share of profit could only be disallowed and there are no direct expenses incurred for earning dividend income and share in profit, hence, no such disallowance was called for. AO was not convinced with above reply of assessee for the reason that basic object of introduction of section 14A is to disallow direct and indirect expenditure incurred in relation to income which does not form part of total income irrespective of the fact that business is composite or not. Thereafter, AO computed the disallowance under section 14A read with rule 8D. Assessee challenged this on the ground of AO not having recorded satisfaction in terms of section 14A(2). Held: It was quite clear that AO was not satisfied with the claim of assessee and having regard to accounts of assessee, had arrived at a finding that it was not possible to generate requisite satisfaction with regard to correctness of claim of assessee. Only thereafter, AO made disallowance under section 14A read with rule 8D. Therefore, assessee's contentions that no satisfaction had been recorded by AO in an objective manner was unacceptable. However, AO was directed to consider only those investments for computing average value of investment which yielded exempt income during the year.
Relied:Maxopp Inestment Ltd. v. CIT (2018) 91 Taxmann.com 154 (SC) : 2018 TaxPub(DT) 1403 (SC).
REFERRED :
FAVOUR : Partly in assessee's favour.
A.Y. :
IN THE ITAT, MUMBAI BENCH
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