ITAT deleted addition as AO had not recorded requisite satisfaction

1. The assessee was a Non-Banking Finance Company. The return of income for the year under consideration was filed by it declaring total income of Rs.28,11,100/-. In the said return, dividend income of Rs.13,28,290/- was claimed to be exempt by the assessee and a disallowance of Rs.5.76 lakhs was offered on account of expenditure incurred in relation to the earning of the said exempt income as required by the provisions of section 14A (of Income Tax Act, 1961). The Assessing Officer, however, applied Rule 8D (of Income Tax Rules, 1962) and worked out the disallowance to be made under section 14A (of Income Tax Act, 1961) at Rs.91,28,456/-. Since the total expenditure incurred by the assessee was only Rs.63,44,119/-, the Assessing Officer finally made a disallowance to that extent thereby making addition of Rs.57.68 lakhs.

2. CIT(Appeals) deleted the said addition.

3. On appeal, the ITAT held as under:

"It is observed that in the computation of total income, disallowance of Rs.5.76 lakhs was offered by the assessee under section 14A (of Income Tax Act, 1961) on account of expenditure incurred in relation to the earning of exempt dividend income and there was no reason given by the Assessing Officer, having regard to the accounts of the assessee, to show his dissatisfaction with the correctness of quantum of expenditure disallowed by the asseessee under section 14A (of Income Tax Act, 1961). In the case of REI Agro Limited (supra) cited by the ld. Counsel for the assessee, it was held by the Coordinate Bench of this Tribunal that where the assessee makes a claim that only a particular amount is to be disallowed under section 14A (of Income Tax Act, 1961) and if the Assessing Officer proposes to invoke section 14A (of Income Tax Act, 1961), he has to record the satisfaction as to how the claim of the assessee is not correct having regard to the accounts of the assessee. It was also held that if there is no satisfaction recorded by the Assessing Officer, no disallowance could be made by him by invoking the provisions of section 14A (of Income Tax Act, 1961). Keeping in view this decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited (supra), which has been affirmed by the Hon'ble Calcutta High Court, we hold that in the absence of requisite satisfaction recorded by the Assessing Officer showing how the disallowance offered by the assessee under section 14A (of Income Tax Act, 1961) was not correct having regard to its books of account, it was not permissible to the Assessing Officer in law to invoke section 14A (of Income Tax Act, 1961) and make a further disallowance. We, therefore, uphold the impugned order of the ld. CIT(Appeals) deleting such disallowance made by the Assessing Officer under section 14A (of Income Tax Act, 1961) although on different grounds and dismiss this appeal of the Revenue.”.

Case Reference - Income Tax Officer Vs.- M/s. Rajma Projects Pvt. Ltd

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA 'B' BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member

and Shri S.S. Viswanethra Ravi, Judicial Member

I.T .A. No. 1318/KOL/ 2013

Assessment Year: 2009-2010