2016 (3) TMI 1284 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Held that - Disallowance u/s.14A could be made if the assessee claimed some expenditure against the exempt income. The reason behind the section 14A and Rule 8D is to deny double benefit to the assessee i.e. claiming exemption on one hand and claiming expenditure on the other. But it was never intended by the legislature that disallowance should be made in a routine manner without considering the basic fact i.e. amount of expenditure incurred by the assessee. The assessee had advanced certain arguments that are listed at para 4.2 at pg No.3 of the order of the FAA. We find that the FAA has not dealt with the submissions made by the assessee. We are of the opinion that the matter needs further verification and investigation - thus rendering back the issue to the file of AO for fresh adjudication - Decided partly in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance made u/s.14A of the Income-tax Act, 1961.
2. Charging of interest u/s.234 of the Act.

Analysis:
1. The appeal was filed by the assessee challenging the order of the CIT(A)-12, Mumbai regarding the disallowance made u/s.14A of the Act. The Assessing Officer (AO) had determined the income of the assessee at &8377; 4,59,08,300/-, making a disallowance of &8377; 3.12 Crores under section 14A. The assessee argued that it had not incurred any expenditure related to the exempt income except STT of &8377; 1.41 lakhs. The First Appellate Authority (FAA) upheld the AO's order, stating that the provisions of section 14A were applicable, and Rule 8D was mandatory. However, the ITAT Mumbai found that the FAA did not consider the submissions made by the assessee and decided to send the issue back to the AO for fresh adjudication, considering the actual expenditure incurred by the assessee. The first effective ground was decided in favor of the assessee, in part.

2. The next effective ground dealt with charging of interest u/s.234 of the Act, which was considered consequential in nature and not adjudicated upon. Therefore, the appeal filed by the assessee was partly allowed, with the ITAT Mumbai rendering the decision on 2nd March 2016.