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2022 (8) TMI 1186 - AT - Income TaxDisallowance u/s 14A read with Rule 8D(2)(iii) - Mandatory requirement of recording satisfaction - HELD THAT:- It is undisputed position that the appellant company made investments in partnership firm and in equity shares, income from which is exempt from tax. It is contention of the appellant that no expenditure was incurred to earn the exempt income and, therefore, the question of disallowance u/s 14A does not arise. It is mandatory on the part of the AO to record a satisfaction as to the correctness or otherwise of claim of the assessee regarding the expenditure incurred to exempt income. In the absence of recording of such satisfaction by the AO resort to the provisions of section 14A cannot be made as held by the Hon’ble Bombay High Court in the case of PCIT vs. Reliance Capital Asset Management Limited [2017 (10) TMI 177 - BOMBAY HIGH COURT] The law is settled to the extent that without recording the satisfaction as to correctness or otherwise, the claim of the assessee that no expenditure was incurred to exempt income, the Assessing Officer cannot resort to the provisions of section 14A of the Act. In the present case, from the perusal of the assessment order as well as the order of the ld. CIT(A), it would clearly reveal that the appellant had asserted that no expenditure was incurred. The Assessing Officer had not recorded any finding on the submissions made by the appellant company - Therefore, we remit the issue to the file of the ld. CIT(A) to adjudicate the contention of the appellant company that in the absence of recording of satisfaction, no disallowance u/s 14A can be made in accordance with law. Accordingly, these grounds of appeal no.2 and 4 stands partly allowed. Addition on account of notional rental value of unsold flats lying in stock-in-trade - HELD THAT:- This issue is decided in favour of the appellant company by this Tribunal in the case of Kumar Properties and Real Estate Pvt. Ltd [2021 (4) TMI 1163 - ITAT PUNE], KUMAR CONSTRUCTION AND PROPERTIES PRIVATE LIMITED [2021 (10) TMI 441 - ITAT PUNE]. Addition on account of provision for expenses which has been made in respect of properties which are completed and the expenses had to be incurred - HELD THAT:- It is settled position of law that if liability for expenditure had crystallized during the previous year relevant to the assessment year under consideration, then the deduction should be allowed, although the liability is discharged at future date. Reliance in this regard can be placed on the decision of the Hon’ble Apex Court in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] Thus without examining the crystallization of liability for the expenditure, the Assessing Officer had made disallowance. This approach of the Assessing Officer cannot be upheld. Accordingly, we remit this matter back to the file of the Assessing Officer to examine the allowability of this claim for provision for expenses on being satisfied that the liability for this expenditure had been crystallized during the previous year relevant to the assessment year under consideration and these expenses are incurred in respect of flat already sold and the balance of the expenditure is carried to the closing work-in-progress. Grounds partly allowed for statistical purposes.
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