2015 (3) TMI 496 - HC - Income Tax

Disallowance u/s 14A - whether Tribunal could have reduced the quantum of disallowance without recording satisfaction in terms of Section 14A? - whether Rule 8D was prospective or retrospective? - Held that - A perusal of the impugned order reveals that after holding that Rule 8D of the Rules is prospective in operation, the Tribunal abruptly or should we say arbitrarily proceeded to reduce the quantum of disallowance recorded by the Assessing Officer. Answer the question of law in favour of the revenue, allow the appeal to the limited extent of error in determining the quantum of disallowance and remit the matter to the Assessing Officer for determining the quantum of disallowance, after granting an adequate opportunity to the Assessee to put forth his pleas regarding the quantum of disallowance. - Decided in favour of revenue.

Summary

Issues involved:
1. Delay in filing appeals
2. Reduction of quantum of disallowance without recording satisfaction

Analysis:

Issue 1: Delay in filing appeals
The applications sought to condone a delay of 07 days in filing the appeals. The counsel for the respondent had no objection to the applications being allowed. Considering the averments in the applications and the statement made by the counsel for the respondent, the court allowed the applications and condoned the delay in filing the appeals.

Issue 2: Reduction of quantum of disallowance without recording satisfaction
The case involved Income Tax Appeal Nos.199 and 245 of 2014, raising similar substantial questions of law for the same assessee. The revenue challenged the order passed by the Income Tax Appellate Tribunal, arguing that the Tribunal had no jurisdiction to reduce the disallowance amounts without proper satisfaction or reference to relevant facts. The counsel for the assessee contended that once it was established that Rule 8D operates prospectively, the Tribunal was justified in determining the disallowance quantum, even if detailed reasons were not provided.
The court observed that the Tribunal correctly held Rule 8D to be prospective, based on the judgment in Godrej & Boyce Manufacturing v. DCIT. However, the Tribunal's reduction of the disallowance amounts without recording satisfaction or citing relevant facts was deemed arbitrary. The power to determine the disallowance quantum required satisfaction based on relevant factors. The court concluded in favor of the revenue, allowing the appeal to the extent of the error in determining the disallowance quantum. The matter was remitted to the Assessing Officer for a proper determination after granting the assessee an opportunity to present their case.

The judgment directed the parties to appear before the Assessing Officer on a specified date for further proceedings.