It is mandatory on part of AO to record satisfaction that claim of assessee is not correct for disallowance u/s 14A: ITAT

AO merely saying that investment decision is complex, assessee should have incurred certain expenditure cannot satisfy the requirement of Sec 14A: ITAT

The issue in this appeal of the assessee is regard to the disallowance u/s 14A of the Income Tax Act, 1961 (The Act) of Rs. 192395/- made by the assessing officer and confirmed by CIT(A).

In this case, the assessee is a company engaged in manufacturing of bulk drugs and trading of pharmaceutical products. The ld. AO noted that the assessee had made some usual investments and therefore, made disallowance u/s 14A of the Act of Rs.192395/- which was also confirmed by CIT(A).

Aggrieved by the above order, the assessee preferred an appeal before the tribunal. The assessee submitted before the tribunal that the assessee had not earned exempt and also not incurred any expenditure for earning the exempt income. He further stated that there is no satisfaction recorded by the ld. Assessing Officer. ITAT was of the view that during the year the assessee had not earned any exempt income and further assessee denied that it had incurred any expenditure. Now therefore it was mandatory on part of the learned assessing officer to record a satisfaction that the claim of the assessee is not correct. Such is the mandate of the provisions of Section 14 A (2) of the act. Further the ld. Assessing Officer had merely on the basis of the investment shown in the annual accounts of the assessee had invoked the provisions of Section 14 A read with rule 8D and issued notice to the assessee. When assessee had categorically replied that it had not incurred any expenditure during the year the learned assessing officer is duty-bound to record a satisfaction that why the explanation furnished by the assessee is incorrect. Accordingly, ITAT stated that assessing officer has failed to record any satisfaction prior to invoking of the provisions of rule 8D of income tax rules 1962 and therefore deleted the disallowance made by the assessing officer.

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