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In absence of recording of any satisfaction by the AO having regard to the accounts of the assesses as to why the claim of disallowance made by the assessee u/s. 14 A is not correct, no disallowance can be made.

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Sec. 14A of Income Tax act, 1961—Business Disallowance —Since the AO has not recorded satisfaction having regard to the accounts of the assessee as to why the claim of the disallowance made by the assessee u/s.14A is not correct, which is a pre-requisite for making any disallowance u/s. 14 A, the disallowance made by the AO was deleted.

Facts: Being aggrieved, assessee went on appeal before Tribunal and raised the ground that CIT(A) erred in sustaining the disallowance of Rs. 11,48,724/- made u/s. 14A, without appreciating the fact that the same is without complying with the mandatory conditions of said provision and Without recording ‘satisfaction about incurring of expenditure relating to exempt income with regard to accounts.

Held, that having regard to the language of Section 14A(2), read with Rule 8D, it is clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo-moto disallowance under Section 14A was not correct. A perusal of the assessment order nowhere shows that the AO has recorded any satisfaction as to why the suo-moto disallowance made by the assessee is not correct. Therefore, in the absence of recording of any satisfaction by the AO having regard to the accounts of the assesses as to why the claim of disallowance made by the assessee u/s. 14 A is not correct, no disallowance can be made. - ANAMICA PORTFOLIO PVT. LTD. V/s DEPUTY CIT - [2020] 27 ITCD Online 038 (ITAT-DELHI)