Rule 8D can not be applied without giving reasons. Unless AO rejects explanation of the assessee with some reasoning, mere rejection per se not accepted – Supreme Court rejects Revenue’s SLP
ABCAUS Case Law Citation:
ABCAUS 2873 (2019) (04) SC
Important Case Laws Cited/relied upon by the parties
CIT-VI v. Taikisha Engineering India Ltd., 370 ITR 338 (Del)
The assessee had claimed receipt of tax exempt income by way of dividends for the relevant years. It was subjected to search and was issued with notices under Section 153A.
Later, disallowances were made in the course of the search assessment proceedings. However, the Tribunal granted relief on the basis of the decision of the High Court where it was held that unless the Assessing Officer rejected the explanation or the rationale which induced the assessee to offer particular amount as expenditure with some reasoning, the mere rejection per se cannot be accepted.
The Revenue, not satisfied with the decision of the Tribunal approached the Hon’ble High Court.
The Hon’ble High Court noted that the assessee had offered amounts as disallowance claiming them to be expenditure for tax exempt income. However, the Assessing Officer merely proceeded to reject such amount as expenditure and straightaway applied Rule 8D without adducing any reasons.
The Hon’ble High Court opined that the principle enunciated by it and relied upon by the Tribunal clearly applied to the case.
As a result, it was held that the ITAT did not fall into error in holding as it did and the appeal was dismissed as not giving rise to any substantial question of law.
Aggrieved, the Revenue had challenged the decision of the High Court in the Hon’ble Supreme Court by filing a Special Leave Petition which has been rejected on merit.