Disallowance under Section 14A of Income TAx Act, 1961
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AO had disallowed the expenses u/s 14A by applying the rule 8D for the A.Y 07-08 but the assessee argued and gave the supporting of the decided case law by Hon’ble High Court in its own decision in which it was decided that the sec 14A would be applicable from A.Y 08-09
In the case of ACIT vs M/s.Goel Investments Ltd., ITAT Lucknow affirmed the earlier order of ITAT in a similar case of the same assessee that once provisions of section 14A of the IT Act are to be invoked, the disallowance is to be computed as per rule 8D of the IT rules.
In the case of DCIT vs. M/s Jindal Photo Limited in I.T.A. No. 814/Del/2011, the Delhi Bench of the Tribunal has also expressed similar view, in which it has been held that satisfaction of the Assessing Officer is pre-requisite to invoke the provisions of Rule 8D.
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
