TMI Blog2020 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... . A bald assertion by AO that he is not accepting the assessee s claim is arbitrary and so cannot be justified. The AO has not applied his mind while dealing with the issue and his action smacks of arbitrariness and therefore his action cannot be sustained. And since the ld. CIT(A) s action of non adjudication of the legal issue raised by the ld. CIT(A) makes it unsustainable and so inclined to set aside the order and direct deletion of addition made by AO on this issue by invoking Rule 8D. For the reasons stated above, the appeal of assessee is allowed. - ITA No.1290/Kol/2019 - - - Dated:- 27-5-2020 - Shri A. T. Varkey, JM For the Appellant : Shri Ravi Tulsiyan, CA For the Respondent : Shri JayantaKhanra, JCIT, Sr. DR OR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available on record, it is noted that the assessee is engaged in the business of dealing of shares, Govt. Securities PSU Bonds. The assessee during the year had earned dividend income of ₹ 21,42,911/-, which is exempt from tax u/s. 10(34) of the Act. The assessee claimed that no expenditure was incurred by the assessee in earning this dividend income. The AO disallowed the expenditure amounting to ₹ 20,72,749/- alleging that the assessee debited demat charges of ₹ 33,145/- and therefore disallowances u/s. 14A r.w.r 8D is applicable in case of the assessee. The AO while disallowing ₹ 20, 72,749/- noted as under : During the course of hearing it is seen that the assessee has exempted income by way of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by AO and partially sustained by ld. CIT(A). 6. Per contra, the ld. DR submitted that the AO asked for explanation from assessee and after perusing the reply has recorded his dissatisfaction by recording that the A/R of the assessee was asked to file a reply why disallowance u/s. 14A of the Act will not be made in its case and AO after taking note that the A/R of the assessee furnished written reply dated 12.2.2015 in support of non applicability of section 14A read with Rule 8D was found to be not acceptable, therefore, according to ld. DR the AO has rightly invoked Rule 8D and he does not want us to interferein the order of ld. CIT(A). 7. In the light of the rival submissions, first of all let us have to look at the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 8. From a conjoint reading of section 14A r.w.r 8D reveals that the AO has to first record a finding of fact after having regard to the accounts of the assessee in relation to earning of exempt income that he is not satisfied with the correctnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two stages envisaged by the statute which the AO has to keep in mind while examining the veracity of the expenses incurred by assessee for earning exempt income. The AO first of all is duty bound to examine the assessee s claim of having incurred some expenditure or no expenditure in relation to exempt income. The claim of the assessee in this regard has to be examined by AO having regard to the accounts of the assessee. If the AO gets satisfied with the explanation of the assessee, then there is no need to compute disallowances as per Rule 8D. It is only when the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, then onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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