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TMI Blog2025 (3) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 250 of the Income Tax Act, 1961 (hereinafter referred as 'the Act'). 2. Brief facts of the case are that the assessee is a private limited company and filed its return of income for impugned year on 22.01.2018 declaring income of Rs. 1,63,56,850/-. The case was selected for limited scrutiny under CASS where the one of the reasons was that the exempt income is significant lower than as compared to investment made to earn exempt income. The assessment was completed u/s 143(3) vide order dt. 29.09.2019 at a total income of Rs. 2,01,54,906/- by making disallowance u/s 14A at Rs. 37,98,056/-. Aggrieved by the assessment order, assessee preferred appeal before the ld. CIT(A) which stood dismissed in terms of the impugned order dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt income of Rs. 43,49,026/- and LTCG of Rs. 10,230/- and made investments in mutual funds. He further observed that closing value of investment is of Rs. 36,43,81,719 which is up from Rs. 35,62,39,020/- from las year. Accordingly, he invoked the provisions of section 14A and by applying Rule 8D has made the addition of Rs. 37,98,056/- being 1% of the average value of investments. 7. Before us, Ld. AR submitted that the AO has made addition u/s. 14A r.w. Rule 8D by ignoring the fact that appellant has not claimed any interest on funds borrowed nor other expenses was claimed as the fund manager has not charged any fee or remuneration. Therefore, Section 14A of the Act is not applicable and hence no disallowance under Rule 8D can be made. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the same to the total income computed in the computation of income placed at paper book page 15. He further argued that the assessee has taken advice from the Mutual fund consultants who has not charged any amount for such advice and thus no management fee was paid for the managing the mutual fund portfolio of the assessee company. He thus submit that when no expenses were claimed to earn such exempt income, the provisions of section 14A would not apply to the facts of the assessee's case. Thus, the ld. AR prayed that the facts of the present case being similar to the to the Maxopp case cited supra, the addition u/s. 14A of the Act made by the AO and confirmed by the ld. CIT(A) deserves to be deleted. 8. Per Contra, ld. Sr. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed, if the Assessing Officer, having regard to the accounts of the assessee, 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. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udible in total income shall be disallowed. In no way, it could be interpreted that it seeks to disallow expenses on assumption basis. Therefore, disallowance u/s 14A can be made only when assessee has actually incurred any expenses in relation to such exempt income. The Hon'ble Supreme court in the case of Maxopp Investment (supra) also expressed this view. 9.2 Further as per the provisions of section 14A(2) of the Act read with Rule 8D(1) of the Rules, the AO is duty bound to first record satisfaction in an objective manner having regard to the accounts of the assessee as to why the suo-moto disallowance made by the assessee u/s 14A of the Act is incorrect, before resorting to computation mechanism provided in Rule 8D(2) of the Rules. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules. 36. In para 3.2 of the assessment order, the AO records that, in answer to the query posed by the AO requiring it to produce calculation for disallowances, the Assessee "submitted that they have not incurred any expenditure for earning the dividend income." Thereafter, in para 3.3, the AO records "I have considered the submissions of the Assessee and found not to be acceptable." Thereafter, the AO proceeded to deal with the said provisions of Section 14A and Rule 8D a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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