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2020 (12) TMI 971 - AT - Income TaxDisallowance of expenditure u/s 14A - suo–motu disallowance made by the assessee - AO mandation of recording reasons - HELD THAT:- AO has recorded his satisfaction why assessee’s claim that no exempt income can be attributed to earning exempt income as well as the suo–motu disallowance is not acceptable. On a perusal of the said reasoning, it is noticed that the AO has not rejected the claim of the assessee merely on the reasoning that the assessee does not maintain its account in a manner from which expenditure attributable to earning exempt income can be easily identified. AO has clearly stated that the time devoted by the investment committee and the employees as well as other overheads certainly involve a cost which is attributable to earning of exempt income. Therefore, it is not a case where the Assessing Officer has failed to record any satisfaction and mechanically proceeded to compute the disallowance under section 14A r/w rule 8D. Therefore, in our view, the condition of section 14A(2) stands satisfied in the present case. Reasonableness of disallowance computed under rule 8D(2) - AO treated the suo–motu disallowance of ₹ 6,13,500, as direct expenditure under rule 8D(2)(i) - Commissioner (Appeals) has disapproved the aforesaid decision of the AO and we entirely agree with the reasoning of the first appellate authority. Disallowance made under rule 8D(2)(iii) - As noticed that the assessee had furnished a computation of such disallowance by applying certain basis. Whereas, the AO without properly examining assessee’s computation has straight away applied the formula prescribed in rule 8D(2)(iii). Of–course, the first appellate authority while deciding the issue has granted partial relief to the assessee by directing the AO to exclude the investments which have not yielded exempt income during the year and which in our opinion is correct. However, as far as the remaining disallowance is concerned, in our view, before applying rule 8D(2)(iii), the Assessing Officer should properly examine assessee’s computation. It is observed, while deciding similar issue relating to disallowance under section 14A r/w rule 8D(2)(iii) in the assessment year 2009–10, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication. Following the aforesaid decision, the Tribunal has restored identical issue to the Assessing Officer. Appeal of assessee are allowed for statistical purposes.
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