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2019 (10) TMI 723 - ITAT DELHIDisallowance u/s 14A - mandation of recording proper satisfaction by AO - HELD THAT:- The Hon’ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd., [2015 (2) TMI 672 - PUNJAB AND HARYANA HIGH COURT] held that “onus upon A.O. to record satisfaction that interest bearing funds used for investment to earn tax free income”. The assessee in the present case has claimed that receipt of dividend income does not involve any expenditure since the dividend is directly credited through ECS in the Bank Account. The assessee has not borrowed any funds for investment in shares and mutual funds during assessment year under appeal and no fresh investments have been made, rather assessee repaid unsecured loans in assessment year under appeal. Therefore, it was incumbent on the part of the A.O. to record satisfaction that revised disallowance made by the assessee as per the direction of the A.O. at ₹ 62,701/- was unreasonable and improper. No compliance have been made by the A.O. Therefore, there was no justification for the authorities below to disallow the amount in question - set aside the Orders of the authorities below and delete the addition made by the A.O Disallowance of Office expenses and office maintenance expenses - A.O. disallowed the amounts in question by applying the provisions of Section 40A(2)(b) - HELD THAT:- even for applying the provisions of Section 40A(2)(b) it is for the A.O. to make out a case that expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. No efforts in this regard have been made by the A.O. Therefore, there were no justification for the A.O. to divide the entire amount between 16 parties to make the disallowance. The method applied by the A.O. is not acceptable in view of the language prescribed under section 40A(2)(b) of the I.T. Act, in which A.O. has made disallowance. The Hon’ble Supreme Court in the case of Upper India Publishing House Pvt. Ltd., [1978 (12) TMI 2 - SC ORDER] held that “before applying the provisions of Section 40A(2)(b) the A.O. should have prove that the expenditure is excessive or unreasonable.” It may also be noted here that A.O. disallowed both the expenses considering that expenses have not been incurred wholly and exclusively for the purpose of business. The assessee has filed return of income declaring net income of ₹ 27.86 crores. Therefore, there were no reason for the assessee company to have inflated the expenses which are connected wholly and exclusively for the purpose of business - authorities below were not justified in making the disallowance - Decided in favour of assessee
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