2013 (4) TMI 36 - AT - Income Tax

Disallowance made u/s. 14A r.w.r. 8D - Held that - From the copy of the computation of income and balance sheet placed it is find that the assessee has earned dividend income and the same has been considered as part of the total income for the purpose of tax. As per the provisions of Sec.10 (38) dividend income is exempt. It is a settled law that income can only be taxed as per the provisions of Income Tax Act if an income is specifically excluded for the purpose of taxation the same cannot be considered while computing the tax. See Chokshi Metal Refinery vs. CIT (1976 (3) TMI 35 - GUJARAT HIGH COURT) wherein relying on the decision Navnitlal Zaveri vs. K.K. Sen (1964 (10) TMI 16 - SUPREME COURT) stated that it is incumbent on ITOs to follow the circular No.14 (XL-35) of 1955 and draw the attention of the assessee concerned to all the reliefs and refunds to which the assessee seems to be entitled on the facts of the case even though the assessee might have omitted to claim refund or relief. In the present case, though the assessee has considered the dividend income as taxable and offered it to tax though the same is exempt u/s.10(38), relying on the aforesaid decision assessee should be granted the benefit of exemption. Accordingly direct the A.O. to treat the dividend as exempt u/s. 10(38). So far as taxing of dividend is concerned, since the assessee is eligible to claim the dividend as exempt u/s.10(38) and for which the A.O. directed to grant the exemption to assessee but so as far as the matter of disallowance u/s. 14A is concerned, the issue is remitted to the file of A.O. so that he can consider the disallowance under Sec. 14A in the light of the decision of Godrej & Boyce Mfg.Co.Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT). Thus the appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance made under section 14A of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order of Ld. CIT (A)- XI, Ahmedabad for the assessment year 2009-10. The assessee, a company engaged in manufacturing and trading, electronically filed its return of income declaring total income. The assessment was framed under section 143(3) with various additions/disallowances. The CIT (A) partly allowed the appeal, leading the assessee to appeal further. The primary issue raised by the assessee was the disallowance made under section 14A of the Act.

The Assessing Officer (A.O.) disallowed a specific amount under section 14A after observing the investments made by the assessee and the claimed financial charges. The A.O. believed the investments were made to earn exempt income like dividends and long-term capital gains. The CIT (A) upheld the A.O.'s decision, citing the amended provisions of Section 14A and Rule 8D. The CIT (A) dismissed the appeal, emphasizing the need for disallowance under the amended provisions.

In the subsequent appeal, the assessee argued that since the dividend income was offered for tax and tax paid on it, no disallowance should be made under section 14A. The Departmental Representative (D.R.) supported the A.O.'s and CIT (A)'s decision, referring to a Bombay High Court case. The Tribunal noted that the dividend income was exempt under section 10(38) and directed the A.O. to treat it as such. However, regarding the disallowance under section 14A, the Tribunal remitted the issue back to the A.O. for reconsideration in line with the decision of the Bombay High Court.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, directing the A.O. to reevaluate the disallowance under section 14A based on the principles laid down by the Bombay High Court.

This detailed analysis covers the key aspects of the legal judgment, focusing on the disallowance made under section 14A of the Income Tax Act, 1961, and the subsequent decisions by the CIT (A) and the Tribunal.