2023 (4) TMI 531 - AT - Income Tax

Disallowance u/s 14A - objective satisfaction recorded by the Ld. AO having regard to the accounts of the assessee - HELD THAT:- The mandate of section 14A(2) and 14A(3) of the Act read with Rule 8D(1) of the Rules clearly stipulates that the AO is supposed to examine the financial statements of the assessee and from the said examination arrive at an objective satisfaction as to what expenses could be attributed towards the investment activity of the assessee. This exercise has not been apparently done by the AO in the instant case as is evident from the manner of recording satisfaction reproduced.

We find that the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT] had categorically held that the Ld. AO is bound to record objective satisfaction as to why the claim made by the assessee is incorrect. In the absence of mandatory objective satisfaction recorded by the Ld. AO in terms of section 14A(2)/14A(3) of the Act read with Rule 8D(1) of the IT Rules, we hold that the disallowance made u/s 14A of the Act would have no legs to stand in the eyes of law. Accordingly, we direct the AO to delete the disallowance of expenses u/s 14A - Grounds No.1, 2 and 3 raised by the assessee for AY 2010-11 are allowed.

Chargeability to interest u/s 234C - The law is very well settled that interest u/s 234C of the Act could be done only on the returned income and not on the assessed income. AO is directed accordingly.

Chargeability of interest u/s 220(2) - This would be consequential in nature and does not require any specific adjudication. However, AO is directed to charge interest u/s 220(2) of the Act in accordance with law.

Incorrect grant of interest u/s 244A on refund - AO is directed to grant interest u/s 244A of the Act in accordance with law.