Rule 8D only after rejecting the claim of the assessee?

[bhaveshformals]

If section 14A (2) is read carefully, then can we advance the arguments that Rule 8D is to be applied only if the A.O. is dissatisified as regards the claim of the assessee? Thus Rule 8D is not to be applied mechanically. It is a last option.
It is only after A.O. rejects the claim of the assessee.
Also while rejecting, should the A.O give reasons for his order?   
Has anyone else here taken a simliar position.


Bhavesh Savla
Keep Smiling.

[probal_shome]

I totally agree with your interpretation. The jurisdiction to apply Rule 8D arises only after the AO shows in what way he is unable to accept the Assessee's computation. Obviously, the AO's rejection of the Assessee's computation is justiciable.

I read an article on this site titled  New Rule 8D – A lesson in tight rope walking?  where the author has stated:

"9. The Assessing Officer has to be first dissatisfied with the correctness of disallowable expenditure calculated by the Assessing Officer. It is a mandatory condition in section 14A that this dissatisfaction is reached "having regard to the accounts of the assessee". Even Rule 8D agrees that the Assessing Officer should be dissatisfied "having regard to the accounts". In short, he cannot disregard the accounts in making his inquiry whether the disallowance worked by the assessee is correct. If, having regard to the accounts, he feels that the disallowance calculated by the assessee can be corrected by reworking it scientifically, he need not invoke the provisions of rule 8D. This is more particularly so, when the books of account provide the means to work out the disallowance correctly. If, there are no accounts or the accounts are unreliable and requires to be rejected, rule 8D cannot be invoked as this rule itself depends on accounts [the balance sheet figures] for its calculation.

10. According to me, Rule 8D can be invoked only when it is not possible to work out the disallowance correctly having regard to the accounts, say due to the complexity involved in the accounts or lack of some vital information. This interpretation, I feel, will assign due weightage and justice to the expression "having regards to the accounts".

Rule 8D is meant as a measure of last resort only; i.e., when it is not possible to work out the disallowance correctly having regard to the accounts. Even if the working of the disallowance made by the assessee is wrong, the Assessing Officer must take due regard to the accounts and find out whether the disallowance can be worked on basis of accounting principles. This, he is expected to do so honestly and only when this possibility is exhausted, he must resort to the determination by Rule 8D."


Probal.

[bhaveshformals]

@Probal bhai

Also please answer the question that should the Assessing Officer recored the reasons in writing in his order for the rejection of the claim of the assessee and the subsequent application of Rule 8D.

Bhavesh Savla
Keep Smiling.

[probal_shome]

Bhavesh Ji,

Once it is accepted that the AO's decision is justiciable, it has to follow that he has to give reasons for his decision. If the AO does not give reasons, how can an appellate authority decide whether his grounds for rejection are justified or not.

So, I agree with you that the AO has to record his reasons in writing before invoking rule 8D.

Probal.