Cairn India Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeDisallowance suo motu offered by assessee not sufficient----Where AO was satisfied having regard to assessee's accounts that under section 14A read with rule 8D amount suo motu offered by assessee was not justified and thus, disallowance under section 14A read with rule 8D(ii) and rule 8D(iii) made by AO was proper.--AO noticed that assessee had made investment in shares, mutual funds and earned exempt dividend income of Rs. 64.77 crores. Assessee offered suo motu disallowance under section 14A to the tune of Rs.18 lakhs as the expenses incurred in relation to exempt income. On AO's enquiry assessee stated that it had borrowed money to the tune of Rs. 1345 crores from State Bank of India and afterward to repay said loan to SBI unsecured debentures of Rs. 1350 crores were issued and in relevant year it was claimed that it had not borrowed fund(s) to investment in shares/mutual funds. AO was being dissatisfied with assessee's reply made total disallowance under rule 8D(2)(ii) and 8D(2)(iii) being Rs. 15.53 crores. Assessee contented that AO did not record dissatisfaction with regard to disallowance set made by it before resorting to rule 8D. Held: AO's satisfaction as regards to computation and accounts for making disallowance under section 14A read with rule 8D(2), is necessary under section 14A(2). The AO did record proper satisfaction in terms of section 14A(2) before resorting to rule 8D, hence, assessee's plea that there was no satisfaction failed. Therefore, assessee's calculation of disallowance under section 14A read with rule 8D(2)(iii) had been rightly rejected by the AO. The assessee had not disputed any part of the calculation of such disallowance. This computation of disallowance, having been made in terms of rule 8D(2)(iii), was held to have rightly made. The assessment order making disallowance was upheld pro tanto.