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2017 (11) TMI 1069 - AT - Income TaxAllowability of provision made under the head “late delivery charges” - Held that:- Provision has been recognized by the assessee on the basis of obligation stipulated in the contract which ranges from 1 to 10% and assessee has given a detailed working for making the provision @ 2% which also gets ratified by the actual payments in the subsequent year. Here the obligation of the assessee is a result of an event which is probably outflow of resources required to settle the obligation and based on this, a reasonable estimate has been made. Thus, it cannot be held that provision made by the assessee is not proper and it is some kind of unascertained liability. In any case, actual event happening in the subsequent year that assessee did incur expenditure of approximately ₹ 19.47 lakhs and also offered the income of excess provision of ₹ 5.54 lakhs, such disallowance of provision is uncalled for. Accordingly, the ground raised by the assessee is allowed. Disallowance under section 14A - Held that:- Assessing Officer, without examining the accounts maintained by the assessee and also nature of expenditure debited, held that employee who is looking after the investment must have incurred transport, telephone and other administrative expenses and, therefore, he justified application of Rule 8D. Section 14A(2) read with Rule 8D(1)(a) requires that the Assessing Officer before invoking the provision of Rule 8D having regard to the account of the assessee about correctness of the claim of expenditure made by the assessee has to record his satisfaction that such a claim made by the assessee is not correct and such a satisfaction can only be discernible once he has examined the nature of accounts and expenditure debited qua earning of exempt income. If the Assessing Officer does not apply with the mandatory requirement of section 14A(2) and Rule 8D(1), then disallowance under section 14A cannot be triggered and thereby proceed with disallowance in accordance with formula laid down in Rule 8D(2). The mandatory requirement of proceedings under section 8D(2) has to rout through provisions enshrined in rule 8D(1) and section 14A(2). Once that is not so, then he cannot proceed with the disallowance. Accordingly, the ground raised by the assessee is allowed.
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