2015 (7) TMI 1139 - AT - Income Tax

Disallowance under section 14A read with Rule 8D - Held that - In the light of the judgment of Hon ble Jurisdictional High Court in the case of CIT vs. Corrtech Energy (P) Ltd. (2014 (3) TMI 856 - GUJARAT HIGH COURT) the disallowance under section 14A cannot be made when no income is claimed to be exempt in that particular year. That precisely is the undisputed situation before us. In the present year, the assessee does not have any income from the related investments. In this view of the matter, the disallowance under section 14A must be held to be unsustainable in law. As for the question whether this plea can be taken up in the second round of proceedings, we find that it is a purely legal and fundamental issue which can be taken up before us even at this stage. We, therefore, direct the Assessing Officer to delete the disallowance.

Summary

Issues:
1. Disallowance under section 14A r.w. Rule 8D - Rs. 7,02,596/-

Analysis:
1. The appellant challenged the correctness of the CIT(A)'s order concerning the assessment under section 143(3) r.w.s. 254 of the Income-tax Act, 1961 for the assessment year 2002-03. The primary contention was the disallowance under section 14A r.w. Rule 8D amounting to Rs. 7,02,596/-. The appellant argued that the CIT(A) erred in dismissing the appeal and should have allowed it in accordance with the grounds raised. Additionally, the appellant contended that the provisions of section 14A r.w. Rule 8D were not applicable retrospectively based on a decision of the Bombay High Court. The appellant also highlighted that the CIT(A) failed to consider the case laws relied upon.

2. During the original assessment proceedings, the Assessing Officer disallowed Rs. 9,69,642/- under section 14A. Upon appeal, the matter was remitted to the Assessing Officer to make the disallowance under section 14A read with Rule 8D. Subsequently, the Assessing Officer disallowed Rs. 9,02,596/-. The appellant, aggrieved by this decision, appealed before the CIT(A) without success, leading to a further appeal. The relevant facts were duly considered in the context of the legal position.

3. The Tribunal, after hearing the contentions of both parties and examining the material on record, found that the disallowance under section 14A was unsustainable in law. Citing the judgment of the Jurisdictional High Court, it was established that the disallowance cannot be made when no income is claimed to be exempt in that year, which was the case in the present situation. Referring to legal precedents, including judgments of the Supreme Court and the Bombay High Court, the Tribunal directed the Assessing Officer to delete the disallowance. Consequently, the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal's judgment primarily revolved around the disallowance under section 14A r.w. Rule 8D, emphasizing the legal position that such disallowance is unsustainable when no income is claimed to be exempt. The decision was based on a thorough analysis of the facts, legal provisions, and relevant case laws, ultimately leading to the allowance of the appeal in favor of the appellant.