JK Investors (Bombay) Ltd vs. ACIT - Itatonline.org

ITA Nos.7858 & 7851 of 2011 JK Investors (Bombay) Ltd Mumbaisection (2) & (3) of section 14A, there is noquestion of disallowing the amounts invokingRule8D. Therefore, the CIT(A)’s direction onthis is set aside and the additions so madeby the A.O. in the computation of businessincome is deleted. Ground is consideredallowed.”5.4 Similarly in case of Auchtel Products Ltd (supra), itwas held by this Tribunal in Para 15 has under:“15. A bare perusal of the above provisionsdisallowable as per Rule 8D, if he, “is notsatisfied with the correctness of the claim ofthe assessee” in respect of such expenditurein relation to exempt income. Even if theassessee claims that no expenditure wasincurred in respect of exempt income, the AOis supposed to follow the mandate of Rule 8Dif he is not satisfied with the correctness ofthe assessee’s claim. To put it simply, thefurther disallowance u/s.14A is called forwhen the AO is not satisfied with theassessee’s claim of having incurred noexpenditure or some amount of expenditurein relation to exempt income. Satisfaction ofthe AO as to the incorrect claim made by theassessee in this regard is sine qua non forinvoking the applicability of Rule 8D. Suchsatisfaction can be reached and recordedonly when the claim of the assessee isverified. If the assessee proves before the AOthat it incurred a particular expenditure inrespect of earning the exempt income and theAO gets satisfied, then there is norequirement to still proceed with thecomputation of amount disallowable as perRule 8D. From the assessment order, it isobserved that the AO simply kept theassessee’s submissions on record withoutappreciating as to whether these werecorrect or not. He proceeded on the premiseas if the disallowance as per Rule 8D isautomatic irrespective of the genuineness ofthe assessee’s claim in respect of expensesincurred in relation to exempt income. It is anincorrect course adopted by the AO. Thecorrect sequence, in our considered opinion,for making any disallowance u/s. 14A is to,firstly, examine the assessee’s claim ofhaving incurred some expenditure or noexpenditure in relation to exempt income, IfPage 12 of 21http://www.itatonline.org