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2018 (6) TMI 1177 - AT - Income TaxDisallowance of expenditure incurred in relation to exempt income u/s 14A r.w.s. 8D(2) - non recording of satisfactions by AO - Held that:- On perusal of the facts available on record, though the AO in a cryptic manner said that “I am not satisfied with the claim of the assessee that no expenses were incurred for earning exempt income and the expenditure relates to the exempt income is to be determined as per Rule 8D(2) of the Income-tax Act, 1962”, filed to record a satisfaction having regard to the accounts of the assessee that the assessee has incurred particular expense in relation to earn exempt income. Since the AO has not recorded his satisfaction in the assessment order before determining disallowance contemplated u/s 14A of the Act, invoking Rule 8D(2) to compute such disallowance is not in accordance with law. Sufficiency of own funds - if there are funds available both interest free and overdraft and / or loans, then a presumption would arise that investment would be out of the interest free funds generated or available with the company, if the interest free funds are sufficient to meet the investments. In this case, the assessee has filed necessary evidences to prove that its interest free funds are more than its investments in partnership firm which yielded exempt income and accordingly, the AO was erred in determining disallowances by invoking Rule 8D(2)(ii) of Income-tax Rules, 1962 in respect of interest expenditure. Addition towards unpaid service tax liability u/s 43B - Held that:- Hon’ble Delhi High Court in the case of CIT vs Noble & Hewitt India Pvt Ltd [2007 (9) TMI 238 - DELHI HIGH COURT] held that when assessee did not debit the amount in the P&L account as an expenditure and nor he made the claim of deduction in respect of the said amount, the question of disallowing the deduction not claimed would not arise. In this case, on perusal of facts available on record, we find that the assessee has treated service tax collected from customers under the head ‘current liability’ based on the interim order passed by the Hon’ble jurisdictional High Court[2010 (7) TMI 461 - HIGH COURT OF BOMBAY] - there is a valid and sound reason for the assessee to keep service tax collected from its customers under the head ‘current liability’. We further observe that the assessee has remitted service tax collected from customers in the subsequent assessment year as soon as the issue of constitutional validity has been decided by the Hon’ble High Court. Therefore, we are of the considered view that the AO was erred in making disallowance - decided in favour of assessee
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