AO cannot disallow under section 14A without recording his Satisfaction

Wanbury Limited Vs DCIT (ITAT Mumbai)

ITAT find that during the year, the assessee has not earned any exempt income and further assessee denied that it has incurred any expenditure. Now therefore it is mandatory on part of the learned assessing officer to record a satisfaction that the claim of the assessee is not correct. Such is the mandate of the provisions of Section 14 A (2) of the act. We find that the learned assessing officer has merely on the basis of the investment shown in the annual accounts of the assessee has invoked the provisions of Section 14 a read with rule 8D and issued notice to the assessee. When assessee has categorically replied that it has not incurred any expenditure during the year the learned assessing officer is duty-bound to record a satisfaction that why the explanation furnished by the assessee is incorrect. Such satisfaction also has to be based on accounts of the assessee. If assessing officer merely says that as the investment decision are very complex the assessee should have incurred certain expenditure cannot satisfy the requirement of Section 14 A (2) of the act. This shows that there is no reference to the accounts of the assessee. Accordingly, we find that assessing officer has failed to record any satisfaction prior to invoking of the provisions of rule 8D of income tax rules 1962. Accordingly ground number 2 of the appeal of the assessee is allowed and disallowance made by the learned assessing officer u/s 14 A of the act of ₹ 192,395/– confirmed by the learned CIT – A deserves to be deleted in view of absence of proper satisfaction recorded by the learned AO.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

01. This appeal is filed by the assessee against the order passed by learned Commissioner of Income Tax (Appeals)-24, [the learned CIT (A)], Mumbai dated 07.02.2019 for AY 2015-16 raising following grounds of appeal.

“1. Disallowance under Section 36(1)(iii) of the Act.

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