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2020 (2) TMI 1269 - ITAT DELHIDisallowance u/s 14A r.w.r. 8D - HELD THAT:- Section 14A (2) provides that the AO while determining the amount of expenditure incurred in relation to the exempt income, first of all, should examine the claim of the assessee having regard to the accounts maintained by the assessee and then he has to satisfy himself with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the exempt income. If the assessee having regard to the accounts and nature of expenses debited points out that these expenditures are not connected or attributable to earning of exempt income, then same cannot be roped in for the purpose of disallowance under this section unless Assessing Officer finds something contrary. When the assessee has given a very detailed working, then without pointing out any defect, the AO in a very general manner has held that there is direct and proximate nexus between the expenditure and the exempt income. The satisfaction of the AO should not be mechanical but should prima facie indicate his application of mind on the accounts maintained by the assessee and the nature of expenditure debited vis-à-vis its co-relation with the earning of the exempt income. It is a well settled proposition in GODREJ & BOYCE MANUFACTURING COMPANY [2017 (5) TMI 403 - SUPREME COURT] that satisfaction of the AO is mandatory before resorting to disallowance. Here in this case, as pointed out earlier there is no requisite satisfaction by the AO and he has mechanically applied rule 8D. Manner in which disallowance under Rule 8D(iii) has been made by the Assessing Officer is not called for and, accordingly, the disallowance made by the AO over and above the suo moto disallowance made by the assessee is deleted. Appeal of the assessee is allowed.
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