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2022 (6) TMI 931 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - whether or not it is obligatory for the Assessing Officer to record his satisfaction as to why the claim of the assessee in respect of expenses incurred for earning of exempt income? - HELD THAT:- In case the A.O, or, the CIT(A) in exercise of his powers which are coterminous with that of an A.O, sought to disallow the claim of the assessee that no expenses could be attributed to earning of the exempt dividend income by him, then, there was an innate obligation cast upon them to have recorded the requisite satisfaction that having regard to the accounts of the assessee, as placed before them, it was not possible to generate the requisite satisfaction with regards to the correctness of the aforesaid claim of the assessee. At this stage, we may herein observe, that the Hon'ble High Court of Bombay in the case of CIT v. Sociedade De Fomento Industrial Pvt. Ltd. [2020 (11) TMI 277 - BOMBAY HIGH COURT] referring to the facts involved in the case before it, had observed, that though the Assessing Officer had discussed the provisions of section 14A(1) of the Act, but had not justified how the expenditure which the assessee had incurred during the relevant year related to the income not forming part of its total income and, had straightaway applied rule 8D, then, in the absence of proximate relationship between the expenditure and the exempt income the disallowance made by him was rightly vacated by the Tribunal. Accordingly we are of the considered view, that as there is a clear lapse on the part of the lower authorities in validly assuming jurisdiction for dislodging the assessee’s claim that no disallowance u/s.14A of the Act was called for in its hands, therefore, the disallowance worked out by the Assessing Officer u/s 14A r.w Rule 8D(2)(iii), which thereafter, had been sustained by the CIT(Appeals) is liable to be vacated. We, thus, set-aside the order of the CIT(A) and vacate the disallowance made by the A.O u/s 14A r.w Rule 8D(2)(iii).
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