INCOME TAX ACT, 1961,

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Applicability of rule 8D - Non-satisfaction not recorded by AO

Assessee disallowed a sum under section 14A as expenditure attributable to earning of exempt income, but AO did not accept the claim of the assessee. The AO worked out disallowance under section 14A by invoking rule 8D, which was confirmed by CIT(A). Tribunal held that the AO did not record his non-satisfaction to reject disallowance under section 14A claimed by the assessee. Therefore, there would be no occasion to invoke rule 8D to work out the disallowance. Held: Non-satisfaction with the disallowance offered by the assessee had to be arrived at on the basis of the accounts submitted by the assessee. The AO had not carried out any exercise but rejected the disallowance claimed by the assessee only on the ground that it was not in accordance with rule 8D. The application of rule 8D would only arise once the AO was not satisfied on an objective criteria in the context of its accounts, that suo motu disallowance claimed by the assessee was not proper. Thus, Tribunal rightly held that there would be no occasion to invoke rule 8D to work out the disallowance under section 14A.

REFERRED : Maxopp Investment Ltd. & Anr. v. CIT & Anr. (2018) 91 taxmann.com 154 (SC) : 2018 TaxPub(DT) 1403 (SC); Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT & Anr. (2010) 328 ITR 81 (Bom) : 2010 TaxPub(DT) 2182 (Bom-HC) and M.A. Rasheed v. State of Kerala 1974 (2) SCC 687

FAVOUR : In assessee's favour.

A.Y. :

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