TMI Blog2018 (12) TMI 1920X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be invoked. Claim of the assessee as regards the expenditure incurred in relation to income which does not form part of the total income under the I.T Act was rejected by the A.O in the assesses own case for the immediately preceding year viz. A.Y. 2011-12. However, on appeal the Tribunal had vacated the disallowance that was made by the A.O under Sec. 14A r.w. Rule 8D de hors recording of such satisfaction on his part, by relying on the judgment of the Hon‟ble Supreme Court in the case of Godrej Boyce Manufacturing Company Ltd. Vs. DCIT Anr.[ supra] - Decided in favour of assessee. - ITA No. 6803/Mum/2016 - - - Dated:- 26-12-2018 - Shri Shamim Yahya, Accountant Member And Shri Ravish Sood, Judicial Member For the Appellant : Shri Saisudha Multani, A.R. For the Respondent Shri Satish Chandra Rajore, D.R. ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the CIT(A)-54, Mumbai dated 31.08.2016, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short I.T. Act‟), dated 30.03.2015. The assessee assailing the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Briefly stated, the assessee company which is engaged in the business of manufacturing of chemicals had e-filed its return of income for A.Y 2012- 13 on 28.09.2012 declaring total income of ₹ 1,31,66,377/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2) of the I.T. Act. 3. During the course of the assessment proceedings it was observed by the A.O that the assessee was in receipt of dividend income of ₹ 1,23,43,470/- which was claimed as exempt. It was noticed by the A.O that the assessee had suo motto disallowed an amount of ₹ 441/- as having been incurred for earning of the exempt dividend income. Further, it was observed by him that under a scheme of arrangement approved by the Hon‟ble High Court of Bombay, dated 14.09.2012 the entire investment of the assessee was transferred to its associate company viz. M/s Utkarsh Chemicals Pvt. Ltd. with effect from 01.01.2012. The A.O called upon the assessee to explain as to why disallowance of expenses incurred for earning of the exempt dividend income may not be computed as per Sec.14A r.w. Rule 8D. The assessee vide its letter dated 20.03.2015 worked out the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (2) to Sec.14A in itself revealed that he was not satisfied with the correctness of the aforesaid claim made by the assessee. Further, the CIT(A) was of the view that the provisions of sub-section (3) of Sec.14A shall have an automatic application when it was claimed by the assessee that it had not incurred any expenditure in relation to earning of the exempt dividend income. On the basis of his aforesaid observations it was concluded by the A.O that the question of examining the satisfaction of the A.O as regards the incorrectness of the claim of the assessee did not arise due to the legal fiction embodied in sub-section (3) of Sec. 14A of the I.T. Act. Apart therefrom, the other contentions which were advanced by the assessee as regards the validity of the disallowance made by the A.O under Sec.14A r.w. Rule 8D also did not find favour with the CIT(A) who rejected the same. Insofar the claim of the assessee that the disallowance made under Sec.14A was not to be added to the book profit‟ under Sec.115JB of the I.T. Act, the same too was rejected by the CIT(A). The CIT(A) in the backdrop of his aforesaid observations dismissed the appeal of the assessee. 5. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for both the parties, perused the orders of the lower authorities and the material available on record. We find from a perusal of the assessment order that the claim of the assessee that an amount of ₹ 441/- only was attributable towards earning of the exempt dividend income was not accepted by the A.O. It is a matter of record that the A.O had rejected the aforesaid claim of the assessee without recording his satisfaction as to why the same was not to be accepted having regards to the accounts of the assessee. The assessee had assailed before the CIT(A) the dislodging of its claim of expense incurred for earning of the exempt income de hors recording of any satisfaction as regards the incorrectness of such claim on the part of the A.O. However, the CIT(A) did not find favour with the contentions advanced by the assessee and not finding any infirmity in the order of the A.O, upheld the same. Rather, a perusal of the order of the CIT(A) reveals that he had given a go by to the statutory requirement of recording of satisfaction by the A.O, holding a conviction that it was not obligatory on the part of the A.O to have recorded the same in writing. As observed by us hereinabove, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Off icer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read wi th Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 9. We find that the claim of the assessee as regards the expenditure incurred in relation to income which does not form part of the total income under the I.T Act was rejected by the A.O in the assesses own case for the immediately preceding year viz. A.Y. 2011-12. However, on appeal the Tribunal had vacated the disallowance that was made by ..... 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