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2017 (11) TMI 1929 - AT - Income TaxDisallowance u/s. 14A r.w. Rule 8D - suo-moto disallowance by assessee - HELD THAT:- In the present case we observe that during the course of assessment, AO after considering the submissions of assessee proceeded on to working of disallowance u/s. 14A r.w. Rule 8D without commenting or recording satisfaction qua suo-moto disallowance made by assessee. The right course of action for the Assessing Officer is to first examine correctness of assessee’s claim of disallowance made u/s. 14A. If the Assessing Officer is not satisfied with the correctness of the claim made by assessee, the Assessing Officer after recording objective satisfaction should have invoked the provisions of Rule 8D. In the instant case the Assessing Officer has not deliberated in his order as to what was the disallowance made by assessee, and as to why the disallowance made by assessee is incorrect. AO directly proceeded on to compute disallowance under Rule 8D without even taking note of suo-moto disallowance made by the assessee. CIT (A) has erred in coming to conclusion that the Assessing Officer has recorded satisfaction regarding applying Rule 8D. A perusal of assessment order reveals that the Assessing Officer at the outset asked the assessee to furnish explanation as to why proportionate amount of interest expenditure should not be disallowed under Rule 8D r.w. section 14A of the Act, instead of first examining the suo-moto disallowance made by assessee and seeking explanation from the assessee the manner of computation of such disallowance. The Assessing Officer proceeded on the premise as if disallowance u/s. 14A r.w. Rule 8D is automatic irrespective of the genuineness of claim made by assessee. In the case of Pr. Commissioner of Income Tax Vs. Reliance Capital Asset Management Ltd. [2017 (10) TMI 177 - BOMBAY HIGH COURT] has held that where Assessing Officer has not commented upon the correctness or otherwise of the assessee’s working of expenditure, formula prescribed in Rule 8D(2)(iii) could not have been applied to work out disallowance u/s. 14A. Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Ultra Tech Cement Ltd. [2017 (2) TMI 1005 - BOMBAY HIGH COURT] held that the Assessing Officer is required to record objective satisfaction for making disallowance of expenditure u/s. 14A - AO has made disallowance u/s. 14 r.w. Rule 8D in violation of the provisions of sub-section (2) to section 14A. Hence, the disallowance made by Assessing Officer is not sustainable. - Decided in favour of assessee.
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