2009 (8) TMI 750 - HC - Income Tax

Deduction law applicable Section 14A prohibiting deduction of expenses relating to non-taxable income circular of CBDT dated 23-7-2001 stating that concluded assessments could not be reopened for purposes of section 14A Assessment which could be modified by higher authority not a concluded assessment till expiry of time limit for such modification Assessment order remanded for modification in appeal Subsequent revision of order Permissible

Summary

Issues:
- Appeal against the order of the Tribunal confirming the order issued by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, directing the Assessing Officer to make proportionate disallowance in respect of expenditure incurred on items of income which do not form part of total income under section 14A of the Income-tax Act.

Analysis:

The appellant, a bank, challenged an order issued by the Commissioner of Income-tax under section 263 of the Income-tax Act, directing the Assessing Officer to make a pro rata disallowance in respect of expenditure incurred on items of income not forming part of the total income under section 14A. The appellant contended that the assessment was finalized before the introduction of section 14A, citing a circular that prohibited reopening assessments for such disallowances. However, it was revealed that the assessment was not concluded as it was directed to be modified by the first appellate authority, the Commissioner of Income-tax (Appeals). The Tribunal held that an assessment pending finalization after a remand cannot be considered concluded. Additionally, the Commissioner was within the statutory time limit to issue the order under section 263(2) for revision of assessment, which could be modified by a higher authority. The circular prohibiting modification for pro rata disallowance under section 14A only applied when the time limit for modification by the original or revisional authority had expired. The Tribunal found no statutory violation in the Commissioner's order and allowed the assessee to furnish details to limit the disallowance to the actual pro rata expenditure attributable to the items of income not forming part of the total income, ultimately dismissing the appeal.

This analysis covers the issues raised in the appeal against the order of the Tribunal confirming the Commissioner's directive for pro rata disallowance under section 14A of the Income-tax Act. The judgment highlights the significance of assessment finalization, statutory time limits for revision, and the applicability of circulars in modifying assessments for disallowances.