Disallowance under Section 14A of Income TAx Act, 1961
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Whether tribunal was right in allowing appeal of the assessee holding that the interest income earned by the assessee on fixed deposits with the bank and other interest income are eligible for deduction u/s 80IA.
The language of section 14A includes that AO must record a satisfaction if he was unsatisfied with any incorrect claim of the assessee. If he failed to record such a finding then it cannot be said that he rightly invoked provision of section 14A.
It is a trite law as per provision of section and various judicial pronouncement that AO must record satisfaction regarding to non-correctness of the claim of the assessee u/s 14 A. He must ensure that there is an error in calculation of expenditure relating to the income which relates to the exempted income.
After hearing the rival contentions, ITAT held that that the disallowance made by the assessee, is in excess to the disallowance with the working under 14 A r.w.s.8 D which amounts to Rs 1,32,913. ITAT upheld the contentions of the assessee and deleted the addition.
If the AO had reopened the assessment and made a disallowance and these facts could affect the outcome of the issue, the AO should appear before the FAA to file an explanation about the chronology of events. But, in any manner the subsequent decision taken by the AO cannot be held to be a mistake apparent from the record.
The assessee company rather assumed the risk of taking the liability of another company which cannot be said to be for business purpose of the assessee. Hence, the activity of advancing the money and paying the debt of the M/s. Vinedale Ltd. which was on account of purchase of machinery being capital asset, cannot be said to be the business activity
The Revenue has not brought any positive material on record to show that the assessee actually incurred any expenses in relation to earning of exempt income. In our considered view, before making disallowance under section 14A, it was imperative on the part of the Revenue
These are cross appeals filed by the assessee and the revenue directed against two separate orders of Learned CIT (A) – II Lucknow both dated 07.01.2013 for A.Y. 2008 – 09 and 2009 – 10. All these appeals were heard together and are being disposed by this common order for the sake of convenience.
For the assessment year 2008-09 the assessee had reported a tax exempt income to the tune of Rs. 18,26,360/- amongst other heads of income. The AO added back Rs. 19,96,242/- under Section 14A. While doing so, the AO applied Rule 8D by taking into consideration the total quantum of interest other than that invested
Assessee argued that No expenditure directly or indirectly was incurred by the assessee for earning exempt income and further the investment in shares was made in earlier years out of own funds and not out of borrowed funds, therefore, no disallowance u/s 14A r.w. Rule 8D is to be made.