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II. Direct Taxes Case Law:
1. ACIT Vs. Indiabulls Real Estate Ltd., Appeal No. 6602/Del/2016, Date of Judgement: 11.03.2020, ITAT – Delhi
Whether
AO can reject suo-moto disallowance made by assessee u/s 14A of the
Income Tax Act,1961 without recording his satisfaction required u/s
14A(2) of the Act?
Held: No
Brief:
The assessee company earned exempt income during the assessment
year. The assessee company filed its ROI and suo-moto made disallowance
of expenditure incurred in earning the exempt income u/s 14A of the
Act. During the assessment year, Ld. AO without recording his
satisfaction reject the claim of assessee and made disallowance u/s 14A
of the Act which was much more than exempt income earned by assessee
company on the ground that no rationale was furnished by the assessee in
deciding the amount disallowed. Further, no separate staff or work
station has been maintained by the assessee towards investment
activities. The AO further held that the earning of income is not in the
nature of passive activity but in fact, it is a well coordinated
management decision regarding the deployment of funds.
Held:
Hon’ble ITAT held that “While re-computing the disallowance, the
Assessing Officer has not followed the provisions of Section 14A(2) of
the Income Tax Act, 1961 wherein it is mandated that, if the Assessing
Officer having regard to the accounts of the assessee is not satisfied
with the correctness of the claim of the assessee in respect of such
expenditure in relation to which does not form part of the total income
under the Act, then the Assessing Officer shall determine the amount of
expenditure incurred in relation to such income. From the reading of the
judgment of the Hon’ble Apex Court in the case of Maxopp Investment
Ltd. Vs CIT in CA Nos. 104-109 OF 2015, we find that having regard to
the language of Section 14A(2) of the Act, read with Rule 8D of the
Rules, it clear that before applying the theory of apportionment, the AO
needs to record satisfaction that having regard to the account of the
assessee suo moto disallowance under Section 14A was not correct. In the
instant case, we find that no such satisfaction has been recorded by
the A.O to come to the conclusion to invoke the provisions of Section
14A(2). Hence, we decline to interfere with the order of the ld. CIT (A)
and the disallowance is directed to be deleted.
(Please click here for judgment)
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