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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. INTURI RAMA RAO
PER LALIET KUMAR, JUDICIAL MEMBER:
The present appeal is filed by the assessee against the order of the CIT (A), Mangaluru, dt.28.01.2016, for the assessment year 2012- 13.
ITA.604/Bang/2016 Page - 2
The main grievance of the assessee is that the CIT (A) has erred in upholding the disallowance u/s.14A r.w. Rule 8D, made by the AO.
Brief facts are the assessee company is engaged in the business of lease financing and accepting deposits from the public. For the impugned assessment year the assessee filed the return of income declaring nil income. Subsequently the case was selected for scrutiny and notices were issued to the assessee. After granting opportunity of hearing to the assessee, the AO has concluded the assessment proceedings making a disallowance u/s.14A r.w. Rule 8D of an amount of Rs.4,49,642/-, as against the expenditure incurred by the assessee to the extent of Rs.51,434/-, which was disallowed by the assessee in the return of income filed by it. Feeling aggrieved by the order, the assessee filed an appeal before the CIT (A). CIT (A) also upheld the disallowance made by the AO.
Before us, it is the case of the assessee that the AO in para 3.4 of his order has not recorded the satisfaction which was required to be recorded before invoking the provisions of Section 14A r.w. Rule 8D. For the sake of completeness of record, we are reproducing para.3.4 of the assessment order herein below :
3.4 On verification of the details filed the assessee has disallowed Rs.51,434/- towards earning of exempt income. This clearly shows that the assessee has incurred some expenditure in earning the income in view of this, disallowance has to be made u/s.14A in the case of the assessee. It is also important to note that as per the provisions of ITA.604/Bang/2016 Page - 3 sec.14A(3) the AO shall determine the amount of expenditure in relation to exempt income even when the assessee claim that no expenditure has been incurred.
On the basis of the above, it was submitted by the Ld. AR as the AO has not recorded the satisfaction as required under law, therefore the AO was not having the jurisdiction in terms of section 14A. For the purposes of the above said proposition, the Ld. AR relies upon the judgment of the Hon’ble High Court in the matter of M/s. Reliance Capital Asset Management Ltd, in ITA.487 of 2015, dt. 19.09.2017, and submitted that in the absence of satisfaction, no quantification u/s.14A r.w.Rule 8D can be done.
On the other hand the Ld. DR strongly supported the orders of the lower authorities.
From a bare perusal of Section 14A(2), it is clear that the AO before invoking Section 14A, is duty bound to record his satisfaction with respect to the correctness of the accounts of the assessee and the claim of the assessee in respect of the expenditure in relation to the income which does not form part of the total income under the Act. On a perusal of the order passed by the AO, it is crystal clear that the AO has not at all recorded his satisfaction , as to how the expenditure disallowed for the amount of Rs.51,434/- towards earning of the exempt income , was incorrect and further has not recorded his reasons for arriving at that finding. Thus there is error in assuming the ITA.604/Bang/2016 Page - 4 jurisdiction by the AO as recording of satisfaction is sine qua non for invoking Rule 8D. As there is a jurisdictional deficiency/ incompetence in invoking Rule 8D, therefore, the order passed by AO and CIT(A) were improper and without jurisdiction , hence liable to set aside . Accordingly we set-aside and cancel the orders passed by authorities below.