INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Assessee made suo moto disallowance - AO made additional disallowance over and above suo moto disallowance without recording his satisfaction that working given by assessee was not correct

Assessee-company made investment in shares and mutual funds and earned dividend income on the same. It made suo moto disallowance under section 14A read with rule 8D. However, AO was not satisfied with the correctness of the claim made by the assessee and accordingly he made additional disallowance under section 14A read with rule 8D over and above the suo moto disallowance made by the assessee. CIT(A) upheld the action of the AO. Held: AO as well as CIT (A) proceeded to invoke provisions contained under section 14A read with rule 8D without calling details and explanation regarding suo moto disallowance made by assessee. Further, AO merely recorded that he was satisfied with the correctness of the claim of the assessee and no reasons were provided by him as to how and why he was not satisfied with the correctness of the claim of the assessee. Further, the AO did not record any valid satisfaction that working for making suo moto disallowance made by the assessee was faulty. Therefore, as the assessee with its audited accounts, came up with specific computation that in order to earn dividend income, it incurred certain expenses and suo moto disallowed the same, the AO was not empowered to invoke the provisions contained under section 14A read with rule 8D in a mechanical manner without recording his satisfaction that working given by the assessee was not correct.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 199(3) Read with Rule 37BA(3)(ii)

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