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2022 (7) TMI 1362 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Necessity to record satisfaction - disallowance of expenses relatable to exempt income claimed u/s.10(34) of the Act, by invoking the provisions of Sec.14A - HELD THAT:- Where the assessee makes a claim that there is expenditure relatable to exempt income and he makes disallowance i.e. suo moto disallowance u/s.14A of the Act, if the AO proposed to invoke Sec.14A, he has to record satisfaction. That this satisfaction cannot be plain or simple satisfaction or simply invoking the formula prescribed u/r.8D(2), but it is to be done with regard to the analysis carried out on the accounts of the assessee. Hon’ble jurisdictional High Court in the case of Marg Ltd. [2020 (10) TMI 102 - MADRAS HIGH COURT] had considered the issue on satisfaction and held that the disallowance u/r.8D of the Rules r.w.s.14A of the Act, can be computed only after recording satisfaction by the AO in terms of provisions of Sec.14A r.w.r.8D of the Rules. As noted from the assessment order and the order of the CIT(A) that there is no discussion about any expenditure which is relatable to exempt income and how the AO recorded the satisfaction and in our considered view, the AO has not carried out any analysis of the accounts or he has not gone into the accounts despite complete books of accounts were produced before him and has not rejected the disallowance suo moto offered by the assessee. According to us, the mandate given by the provisions of Sec.14A(2) and Rule 8D(2) of the Rules, as regards to recording of satisfaction by the AO qua correctness of the accounts of the assessee for the expenditure claimed qua exempt income is absent and hence, on this very issue, we reverse the order of the lower authorities and allow this jurisdictional issue in favour of the assessee.
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