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2019 (1) TMI 476 - HC - Income TaxDisallowance u/s 14A r.w.r 8D - best judgment determination - Held that:- Rule 8D cannot be invoked and applied unless the Assessing Officer records his dissatisfaction regarding correctness of the claim made by the assessee in relation to expenditure incurred to earn exempt income. This is the mandate and precondition imposed by sub-section (2) to Section 14A. Rule 8D is in the nature of best judgment determination i.e. determination in default and on rejection of the explanation of the assessee in relation to expenditure incurred to earn exempt income. Rule 8D is not applicable by default but only if and when the Assessing Officer records his satisfaction and rejects the explanation of the assessee regarding the disallowance of expenditure. In the present case the assessment order proceeds on a wrong assumption that Rule 8D would applies to all cases and is mandatory. Finding of the Tribunal affirming the order of the Commissioner of Income Tax (Appeals) is in accordance with the law. Legal principle and ratio is no longer res integra and is settled by the judgment of the Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. Vs. Deputy Commissioner of Income-Tax and another [2017 (5) TMI 403 - SUPREME COURT OF INDIA] determination is to be made on application of the formula prescribed under Rule 8-D or in the best judgment of the assessing officer, what the law postulates is the requirement of a satisfaction in the assessing officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Sections 14-A(2) and (3) read with Rule 8-D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.
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