Manipal Group Entities Vs ACIT (ITAT Bangalore)
The main Issue involved in the appeals is the Disallowance u/s 14A read with Rule 8D for expenditure allegedly incurred in relation to exempt income (primarily dividend income).
AOs in each case invoked Rule 8D without recording proper satisfaction about the correctness of Assessees claim that no (or minimal) expenditure was incurred for earning exempt income. AO proceeded to apply Rule 8D mechanically, based on general statements like common pool of funds, expenses such as salaries/rent, & so on.
Tribunal relied on certain legal precedents:
| Supreme Court | Maxopp Investment Ltd | recording of the satisfaction is a sine qua non before making any disallowance |
| Karnataka HC | Hindustan Aeronautics Ltd | Satisfaction must be based on a clear examination of accounts |
| Bombay HC | Tata Capital Ltd | Disallowance not sustainable unless AO gives cogent reasons rejecting assessee’s explanation. |
Tribunal underscored that Sec 14A disallowance cannot be automatic. AO must first examine the accounts & record proper satisfaction before applying Rule 8D. In all five appeals, this precondition was not fulfilled, leading to deletion of disallowances.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1.These appeals involve common grounds of appeal and therefore same are disposed of by this common order.
