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2022 (1) TMI 995 - HC - Income TaxDisallowance u/s 14A r.w.r.8D - mandation of recording satisfaction - whether rule 8D of the Income Tax Rules, 1962 could have been invoked by the AO without examining the correctness of the assessee’s claim of expenditure in relation to exempt income and without recording reasons as to why such a claim was not correct or acceptable? - HELD THAT:- The provisions of Section 14A has to be interpreted, particularly, the words that “in relation to the income” that does not form part of total income. Therefore, it was held that the principle of apportionment of expenses comes into play as that is the principle which is incorporated in Section 14A of the Act. With regard to as to how the power under Section 14A(2) read with rule 8D of the Rules could be invoked it was pointed out that the assessing officer needs to record satisfaction that having regard to the kind of the assessee suo motu disallowance under Section 14A was not correct and it will be in those cases where the assessee in his return has himself apportioned but the assessing officer was not accepting the said apportionment. In any event, the assessing officer will have to record its satisfaction to the said effect. AO has not recorded satisfaction and when this was pointed out before CIT(A) the same was not decided by the CIT(A), the issue was also not decided by the Tribunal when the assessee raised the same, though the grounds have been noted. The Tribunal has not rendered any decision on the said point but granted partial relief to the assessee with regard to the interest alone. See ASHISH JHUNJHUNWALA [2015 (12) TMI 905 - CALCUTTA HIGH COURT] and BRITANNIA INDUSTRIES LIMITED [2018 (9) TMI 152 - CALCUTTA HIGH COURT] See Godrej and Boyce Manufacturing Company Limited [2010 (8) TMI 77 - BOMBAY HIGH COURT] wherein it was held that the law postulates the recording of satisfaction as the requirement to be complied with by the assessing officer. Thus the appeals are allowed and substantial questions of law are answered in favour of the assessee, and the matter stands remanded to the Tribunal to decide the aforementioned issue namely with regard to whether the assessing officer has recorded his satisfaction as required to be done under Section 14A(2) before invoking the computation mode as specified in Rule 8D(2)(iii). As observed earlier, the relief granted to the assessee by the Tribunal for assessment years 2008-2009 and 2009-2010 by the CIT (A) for the assessment years 2011-2012 with regard to the interest portion shall stand affirmed. Tribunal while remanding the matter to the assessing officer particularly directed consideration of the investment which yielded dividend income to the assessee for computing the disallowance under Section 14A read with R. 8D (2) of the Rules. Whatever relief has been granted to the assessee by the Tribunal under the said head shall remain intact
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