ITAT upheld disallowance as AO had recorded implicit satisfaction u/s 14A(2) (of Income Tax Act, 1961)

1. Thermotech Engineering, a partnership firm, was engaged in designing, manufacturing and supply of reactors etc.

2. AO noted that assessee had earned exempt income of Rs.24,18,535 i.e. the dividend on mutual fund.

3. AO also noted that assessee had declared NIL amount as amount inadmissible as a deduction in terms of s 14A.

4. AO noted that the major chunk of the interest debited related to partner's capital out of total interest expenditure.

5. AO computed the disallowance u/s 14A (of Income Tax Act, 1961) r.w. Rule 8D (of Income Tax Rules, 1962) by taking the average of value of investment and average of total assets and also made the disallowance.

6. CIT(A) upheld the AO’s order.

On appeal, the ITAT held as under:

7. Assessing Officer had recorded implicit satisfaction before working out the disallowance under section 14A (of Income Tax Act, 1961).

8. In terms of section 14A(2) (of Income Tax Act, 1961), we find merit in the claim of the Revenue in this regard and dismiss the contention of the assessee that no satisfaction was formed by the Assessing Officer before working out the disallowance under section 14A (of Income Tax Act, 1961).

9. The expenditure relatable to making the investment and taking steps for its redemption and reinvestment involved an element of expenditure and in view of the provisions of Rule 8D(2)(iii) (of Income Tax Rules, 1962), such expenditure is disallowable in the hands of the assessee.

10. Upholding the order of CIT(A) in this regard, we dismiss the grounds of appeal raised by the assessee.

Case Reference - M/s Thermotech Engineering Vs. The Asstt. Commissioner of Income Tax.

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH "A", PUNE

BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM

ITA No. 533/PN/2013

(Assessment Year : 2009-10)