2017 (7) TMI 1230 - AT - Income Tax

Addition u/s 14A - Held that - Hon ble Delhi High Court in the case of Maxopp Investment Limited 2011 (11) TMI 267 - DELHI HIGH COURT held that the condition precedent for the AO to determine the amount of expenditure under Rule 8D is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied, that the AO is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in Rule 8D(2). Also Section 14A read with Rule 8D is not applicable to investments which have not yielded any exempt income. Hence, while computing Rule 8D such investments must be excluded. Thus we restore the matter back to the file of the AO for deciding afresh the disallowance warranted under Rule 8D having regard to the guidelines laid down by the Hon ble Supreme Court in the case of Godrej And Boyce Mfg. Co. Ltd 2017 (5) TMI 403 - SUPREME COURT OF INDIA Disallowance u/s.115JB r.w.s. 14A and r.w.r 8D. - Held that - We direct the AO to recompute the income u/s.115JB(2) with reference to the disallowance sought u/s.14A r.w.r.8D, in terms of the detailed discussion in the order of the Special Bench in the case of Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Addition of obsolete stock written off - Held that - In the instant case before us it is not clear as to whether the items wrote off were part of plant and machinery and forming part of block of assets or same was in the nature obsolete stock having no marketable value, we therefore, restore the matter back to the file of AO for deciding afresh after considering the nature of obsolete stock. We direct accordingly.

Summary

Issues:
1. Disallowance u/s.14A read with Rule 8D.
2. Reassessment of income u/s.115JB.
3. Addition of obsolete stock written off.

Disallowance u/s.14A read with Rule 8D:
The assessee appealed against the CIT(A)'s order for A.Y. 2008-09 to 2011-12 regarding disallowance u/s.14A r.w.r 8D. The AO added an amount to the returned income based on Rule 8D. The assessee offered disallowance for exempt income, which was not disputed by the AO. The Hon'ble Supreme Court's decision emphasized the requirement of AO's satisfaction before invoking Rule 8D. The method followed by the assessee for disallowance was consistent, considering all administrative expenses. The Tribunal directed the matter back to the AO for fresh assessment based on the Supreme Court's guidelines.

Reassessment of income u/s.115JB:
The assessee challenged the disallowance u/s.115JB r.w.s. 14A and r.w.r 8D. Referring to the Special Bench's decision in Vireet Investment Pvt. Ltd., the Tribunal directed the AO to recompute the income u/s.115JB without considering the disallowance u/s.14A r.w.r.8D. The same direction was given for all years under consideration.

Addition of obsolete stock written off:
Regarding the addition of obsolete stock written off in A.Y. 2008-09, the AO disallowed the claim as diminution in asset value. The AO relied on a decision that was deemed inapplicable to the case. The Tribunal found ambiguity in whether the items written off were part of assets or obsolete stock. Thus, the matter was remanded to the AO for reevaluation based on the nature of the obsolete stock.

In conclusion, the appeals were allowed in part, and the Tribunal directed reassessment for disallowance u/s.14A, recomputation of income u/s.115JB, and reevaluation of the addition of obsolete stock written off. The Tribunal emphasized adherence to legal precedents and proper assessment procedures in each issue.