The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) allowed the claim of expenditure incurred in relation to earning exempt income under Section 14A, as the assessing officer failed to record dissatisfaction as mandated in the Setion 14A(2) of Income Tax Act, 1961.
The assessee has earned income exempt from tax under Section 10 of the Income Tax Act. No suo-moto disallowance was made by the assessee for earning of exempt income. The Assessing Officer has straight away invoked the provisions of Rule 8D without recording dissatisfaction with regard to assessee’s claim of no disallowance of expenditure under Section 14A of the Income Tax Act.
The provisions of Section 14A (2) of the Income Tax Act envisaged that the Assessing Officer having regard to the accounts of assessee, if not satisfied with the correctness of the claim of assessee in respect of expenditure in relation to earning exempt income, then the Assessing Officer shall determine the amount of expenditure incurred in relation to exempt income in connection with Rule 8D (2)
The Assessing Officer has to record his dissatisfaction having regard to the accounts of the assessee, with reference to the correctness of the claim of assessee under Section 14A of the Income Tax Act. Though no specific proforma or the manner of recording such dissatisfaction has been prescribed, nevertheless the dissatisfaction of the Assessing Officer should be objective and emanate from his observations in the assessment order
The bench found that the Assessing Officer has simply recorded the submissions of the assessee and thereafter invoked the provisions of Rule 8D by referring to the decision in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT(Supra). However, the Assessing Officer while referring to the aforesaid decision failed to take note of the manner in which dissatisfaction has to be recorded under Section 14A of the Income Tax Act, as explained by the High Court
The two member bench of the tribunal comprising Amarjit Singh ( Accountant member) and Vikas Aswathy (Judicial member) concluded that Assessing Officer has failed to record dissatisfaction as mandated under Section 14A(2) of the Income Tax Act, disallowance under Section 14A of the Income Tax Act in the instant case was unsustainable. Consequently, assessee succeeds on this ground of appeal. Accordingly, the appeal of the assessee was allowed.
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