The Tax Publishers2020 TaxPub(DT) 3039 (Mad-HC) : (2020) 273 TAXMAN 0441

INCOME TAX ACT, 1961

Section 14A(2)

AO prima facie recording his dissatisfaction, stating that he was not satisfied with quantum of expenses claimed by assessee as attributable to earning of exempt income rightly followed procedure under section 14A(2) and having regard to the accounts of the assessee, recorded his satisfaction as to how disallowance voluntarily made by the assessee was not acceptable. Accordingly, disallowance made by AO was justified.

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D - AO recorded proper dissatisfaction as to correctness of assessee's claim under section 14A

Assessee earned tax-free dividend income but no portion of managerial remuneration and directors remuneration was attributed towards dividend earning activity. While computing suo moto disallowance under section 14A. AO invoked rule 8D(2)(iii) and worked out additional disallowance. Assessee challenged this on the ground of non-recording of satisfaction by AO in terms of section 14A(2). Held: As evident, assessee was issued a show-cause notice to explain as to why provisions of rule 8D should not be invoked to compute expenses attributable for earning exempt income. While issuing show-cause notice, AO prima facie, recorded his dis-satisfaction, stating that he was not satisfied with quantum of expenses claimed by assessee as attributable to earning of exempt income. AO clearly stated that managerial staff and directors being involved in making decisions on investments, a portion of managerial and directors remuneration was also to be attributed towards dividend earning activity. Thus, AO rightly followed procedure under section 14A(2) and having regard to the accounts of the assessee recorded his satisfaction as to how disallowance voluntarily made by the assessee was not acceptable. Accordingly, disallowance made by AO was justified.

Relied:Allied Investments Housing P. Ltd. v. Dy. CIT [ITA.No.305/Mds/2013] : 2014 TaxPub(DT) 398 (Chen-Trib), Visual Graphics Computer Services India (P) Ltd. [(2012) 21 Taxmann.com 145 (Chen-Mag-Trib) : 2012 TaxPub(DT) 2247 (Chen-Trib)], Southern Petrochemical Industries v. Dy. CIT [(2005) 93 TTJ 161 (Chen-Trib) : 2005 TaxPub(DT) 804 (Chen-Trib)] and Asstt. CIT v. Citi Corp Finance (India) Ltd. ITA No. 5832/Mum/2003 (assessment eyar 2000-01) dated 27-11-2006].

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2009-10

IN THE MADRAS HIGH COURT

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