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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri Aby T.Varkey, JM & Dr. A.L. Saini, AM ]
ORDER
Per A. T. Varkey, JM
This is an appeal preferred by the assessee against the Order of the Ld. CIT(A)-1 Kolkata dt. 15.03.2016 for the AY 2011-12.
The sole ground raised by the assessee is against the disallowance made by the AO invoking Section 14A Rule 8D on the exempt income.
3. The brief facts of the case is that the assessee is a company incorporated in the year 1946 and derives its income from house property. In the year under consideration the AO noted that the assessee earned tax free income of dividend of Rs. 22,30,957/-. According to the AO, as per Section 14A, any expenditure incurred in relation to income which does not form part of the total income is to be disallowed. According to him the correctness of the claim of the assessee is to be seen with reference to its accounts and the quantum of disallowance is to be worked out as per Rule 8D of the Income Tax Rules. The AO noted that the Tax Auditor vide clause 17(a) of the Tax Audit Report has certified that Rs.2.29.118/- is not admissible u/S 14A of the Act. The AO acknowledges that the assessee has suo moto disallowed Rs. 2,29,118/-u/S 14A. However, according to the AO the correctness of the disallowance is to be examined under Rule 8D of the Income Tax Rules and thereafter invoked Rule 8D and disallowed and worked out the disallowance at Rs. 2,43,961/-. Thereafter, taking note that the assessee has itself disallowed Rs. 2,29,118/-. The difference of Rs. 14,843/- was disallowed at the hands of the assessee. Aggrieved by the disallowance made by the AO to the tune of Rs. 14,843/- the assessee preferred an appeal before the Ld. CIT(A) who was pleased to dismiss the same. Aggrieved the assessee is before us.
We have heard both the parties and perused the records. We find that the assessee has earned dividend income of Rs. 22,30,957/- and has suo moto disallowed Rs. 2,29,118/-. The AO though has accordingly stated that as per the provision of Sec. 14A any expenditure incurred in relation to the income which does not form part of the total income is to be disallowed and that the correctness of the claim of the assessee is to be seen with reference to its account as thereafter invoked Rule 8D and made the computation and after working out the computation as per Rule 8D added Rs. 14,843/-.
We find from the fact of the case in hand that the AO has not examined the account of the assessee and there is no satisfaction recorded by the AO regarding the correctness of the claim of the assessee and without doing the same he could not invoke Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to the earning of exempt income, the AO has to indicate reason as to how he is not satisfied with the claim made by the assessee after examining the accounts of the assessee. From the fact that the case in hand, we notice that the AO has not considered the claim of the assessee and straightaway embarked upon computing disallowance under Rule 8D of the Rules thereby making the order fragile and, therefore, we are of the considered opinion that the addition of Rs. 14, 843/- is not warranted and, therefore, his order be deleted.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 06.01.2017