M.CHANDRA,CHENNAI vs. ACIT, CHENNAI

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ITA 3437/CHNY/2016Status: DisposedITAT Chennai17 May 2017AY 2012-134 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer failed to record the necessary satisfaction before invoking Section 14A and that the disallowance was not made as per the prescribed formula. Therefore, the addition made by the AO and confirmed by the CIT(A) was deleted.

What were the facts?

The assessee claimed exempt income and deducted interest paid to creditors. The Assessing Officer disallowed the entire interest payment by invoking Section 14A read with Rule 8D without recording satisfaction.

What were the issues?

Whether the disallowance of interest under Section 14A r.w.r 8D is valid without recording satisfaction by the Assessing Officer and without following the prescribed formula.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ (SMC

Before: SHRI GEORGE MATHAN]

आदेश / O R D E R

1.

This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-13, Chennai, in appeal No.36/CIT(A)-13/AY 2012-13, dated 27.10.2016 for the assessment year 2012-2013.

ITA No.3437/Mds/2016. :- 2 -:

Shri. S. Sridhar represented on behalf of the assessee and 2. Shri. V. Nandakumar represented on behalf of the Revenue.

3.

The only issue in assessee’s appeal was against the action of the ld. CIT(A) in confirming the disallowance of the interest paid to the creditors by the Appellant by invoking the provisions of Sec. 14A r.w.r 8D. It was submitted that assessee is an individual, who is deriving income as partner in a firm and income from other sources. The assessee had claimed the profit from the firm as exempt u/s.10(2A) of the Act. Assessee had also out of the business income claimed deduction in respect of the interest paid to the loan creditors. It was submitted that in para 7 of the assessment order, ld. Assessing Officer has disallowed the entire interest payments to the loan creditor by invoking the provisions of Sec. 14A of the Act. It was submitted that no satisfaction has been recorded by the ld. Assessing Officer before invoking the provisions of Sec. 14A r.w.r. 8D of the Act. Ld. Authorised Representative placed reliance upon the decision of the Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd vs. DCIT in Civil Appeal No.7020 of 2011, dated 8th May, 2017, wherein para 37 the Hon’ble Supreme Court had held that ‘’Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the ITA No.3437/Mds/2016. :- 3 -:

Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable‘’.

In reply, the ld. Departmental Representative vehemently 4. supported the orders of the ld. Assessing Officer and the ld.

Commissioner of Income Tax (Appeals). It was submitted that assessee had exempt income and consequently the provisions of Sec.

14A r.w.r. 8D applied.

I have considered the rival submissions. A perusal of the 5. para 7 of the assessment order clearly shows that no satisfaction has been recorded by the ld. Assessing Officer for the purpose of making a disallowance u/s. 14A r.w.r. 8D. Further, though the ld. Assessing Officer had invoked the provisions of Sec. 14A of the Act, the determination of the disallowance is not as per calculation or the formula provided in Sec. 14A r.w.r 8D. In the circumstances, respectfully following the decision of the Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd referred to supra,

ITA No.3437/Mds/2016. :- 4 -: in the absence of recording of satisfaction and in the absence of proper determination of the disallowance, the addition made by the ld. Assessing Officer and confirmed by the ld. Commissioner of Income Tax (Appeals) u/s. 14A of the Act stands deleted.

In the result, appeal of the assessee is allowed. 6.

Order pronounced in the open court at the time of hearing on Wednesday, the 17th day of May , 2017, at Chennai.

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