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TMI Blog2022 (4) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... nce at Rs. 1,36,15,61,000/- after giving credit of suo moto disallowance of Rs. 14,96,887/-, and addition Rs. 1,36,00,64,113/- was sustained. 4. Before the ld. CIT(A), assessee had submitted that firstly, the assessee had huge interest free funds available which are more than Rs. 4,94,048.40 lacs whereas an amount of Rs. 1,92,750.91 lacs have been invested in shares. It was categorically submitted that no funds were invested in interest bearing funds. The following chart was also given to provide the availability of interest free funds:- Rs. in Lacs 31.03.16 Share Capital 92,782.79 Share pending allotment 2,511.09 Reserves & Surplus 3,98,754.52 Total interest free funds available 4,94,048.40 Investments : - Shares & Mutual Funds etc. on which exempted income is generated 1,92,750.91 Total Investments 1,92,750.91 5. Apart from that, it was submitted that nowhere AO has recorded his satisfaction on why disallowance offered by assessee is incorrect or he has examined the expenditure having regards to books of account. Apart from that, it was also submitted that the Tribunal in assessee's own case for AY 2011-12 has decided the issue in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer is satisfied about incorrectness of the disallowance so offered, but when assessee does not offer any disallowance u/s. 14A on his own, the provisions of section 14A(2) read with Rule 8D can be invoked without there being any need to express satisfaction about the incorrectness of such a claim. 6.3 In the instant case, the appellant had made a suo-moto disallowance of Rs. 3,90,760/- and the Assessing Officer has not recorded the dissatisfaction about the disallowance suo-moto made by the appellant and has not identified any expenditure which can be considered to be expended in connection with the investment activity. The appellant has own funds of Rs. 2,48,274.96 lakhs which are far more than the investments of Rs. 2,00,706.72 lakhs. The plain reading of the statutory provisions of section 14A(2) and 14A(3) shows that when the assessee offered the disallowance u/s. 14A, the provisions of Section 14A(2) read with Rule 8D cannot be invoked unless the Assessing Officer is dissatisfied about the correctness of the disallowance so offered. 6.4 In view of this, the addition on this account is restricted to Rs. 3,90,760/- under Rules 8D(2)(ii)&(iii) read with sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule BD of the Rules 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 BD or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer 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 with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." ...... 21. Moreover, when the assessee has come up with categoric plea that the entire investment have been made out of its own int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Tribunal for AY 2011-12. 7. We have heard the rival submissions and also perused the relevant finding given in the impugned orders. First of all, we find that AO in his entire order except giving his general remarks has nowhere given any categorical satisfaction as to how the working of suo moto disallowance made by the assessee for the purpose of attributing the expenditure for earning exempt income is incorrect having regard to the accounts maintained by the assessee. Interestingly the AO has noted that assessee has not made any disallowance u/s. 14A, therefore, he is not satisfied with the correctness of the assessee even when suo moto disallowance was offered which is evident from the following observations:- "Assessee has not made any disallowance u/s. 14A of the Income Tax Act. The undersigned Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Hence, the disallowance u/s. 14A needs to be recalculated." 8. Thus, it clearly shows that AO has not applied his mind even the working of the assessee and has mechanical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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