INCOME TAX ACT, 1961

Section 14A(2) Rule 8D(2)

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

Assessee earned tax free dividend income but claimed no disallowance under section 14A pleading that its substantial investments in specified Government securities was coming from earlier years and no expenditure was incurred during the year for earning exempt dividend income. AO invoked rule 8D and worked out disallowance. Assessee challenged this on the ground of non-recording of dissatisfaction by AO as to correctness of assessee's claim. Held: AO accepted audited books of account maintained by assessee company which was a Government undertaking. When it is undisputed fact on record that assessee company being a Government undertaking had made investment in specific Government securities and moreover substantial portion of investments was coming from earlier years, no question arose to incur separate expenses. In order to invoke provisions contained under section 14A read with rule 8D(2), AO was mandatorily required to record his dissatisfaction that claim of assessee as to not incurring any expenses is not correct. So, without recording proper satisfaction mechanical invocation of rule 8D could not be upheld and, therefore, disallowance was deleted.

Relied:Pradeep Khanna v. Asstt. CIT ITA 953/2015 Order, dated 11-8-2016 : 2017 TaxPub(DT) 5064 (Del-HC), CIT v. Taikisha Engineering Private Limited (2015) 370 ITR 338 (Del.) : 2015 TaxPub(DT) 0391 (Del-HC) and Maxopp Investment (P) Ltd. v. CIT (2011) 347 ITR 272 (Del.) : 2011 TaxPub(DT) 2171 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14 & 2014-15

INCOME TAX ACT, 1961

Section 37(1), Expln. 1

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