2014 (2) TMI 1062 - AT - Income Tax

Power of the CIT(A) to set aside - Whether the CIT(A) erred in directing the AO to recalculate the disallowance u/s 14A of the Act Held that - The power to set aside which earlier vested with the CIT(A) has been removed by the Finance Act, 2011 w.e.f 01.06.2001 - the CIT(A) as per the amended provision while deciding the appeal filed by the assessee may either confirm, reduce, enhance or annul the assessment - The power to set aside has been withdrawn by the Legislature - the assessee has made detailed arguments as would be evident from the paper book on record, however it is seen no finding on those facts has been given by the CIT(A) - No findings has been recorded by the CIT(A) - the order is not in compliance with the Statutory mandate thus, the matter remitted back to the CIT(A) with the direction to decide the same in accordance with law by way of a speaking order after giving the assessee a reasonable opportunity of being heard Decided in favour of Revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Powers of the CIT(A) to restore issues to the Assessing Officer (AO).

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The primary issue revolves around the disallowance of expenses under Section 14A of the Income Tax Act, which pertains to expenses incurred in relation to income not includable in total income (exempt income).

For Assessment Year 2004-05:
The assessee declared its income as NIL, and the AO made a proportionate disallowance of Rs. 11,28,050/- under Section 14A. The CIT(A) deleted this disallowance, but the ITAT restored the issue to the AO. Upon reassessment, the AO disallowed Rs. 7,76,363/-, which was again contested by the assessee. The CIT(A) found the AO's calculation arbitrary and remitted the matter back to the AO for proper verification of expenses directly attributable to earning the dividend income.

For Assessment Year 2008-09:
The assessee declared an income of Rs. 1,22,93,931/- and disallowed Rs. 94,14,474/-. The AO made an additional disallowance of Rs. 1,82,10,637/-. The CIT(A) called for a Remand Report and noted that the AO did not pinpoint expenses directly attributable to earning the dividend income. The matter was remitted back to the AO for proper verification.

For Assessment Year 2009-10:
The assessee declared an income of Rs. 17,93,032/- and carried forward a long-term capital loss of Rs. 70,77,836/-. The AO made a disallowance of Rs. 29,00,757/- under Section 14A read with Rule 8D. The CIT(A) found the AO's calculation unsubstantiated and remitted the matter back to the AO for proper verification.

2. Powers of the CIT(A) to Restore Issues to the AO:
The Revenue argued that the CIT(A) does not have the power to restore issues back to the AO, as such power was removed by the Finance Act, 2011, effective from 01.06.2001. The CIT(A) can only confirm, reduce, enhance, or annul the assessment.

The Tribunal noted that the CIT(A) did not provide a concrete finding and merely restored the issues for verification, which amounts to a de novo set aside. This action was deemed non-compliant with the statutory mandate, as the CIT(A) should have given a speaking order addressing the facts and legal principles involved.

Conclusion:
The Tribunal found that the CIT(A) did not comply with the statutory mandate by merely restoring the issues to the AO without proper findings. The Tribunal set aside the impugned order and restored the issues back to the CIT(A) for a fresh decision in accordance with the law, ensuring a speaking order is issued after giving the assessee a reasonable opportunity of being heard. The appeals of the Revenue were allowed for statistical purposes.