2019 (7) TMI 1824 - AT - Income Tax

Reopening of assessment u/s 147 - disallowance u/s 14A - HELD THAT - CIT(A) has clearly held that no disallowance is permissible in this case u/s. 14A on the touchstone of Hon'ble Jurisdictional High Court decision in the case of Jet Airways Ltd. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY in as much as no disallowance has been done on the issue on which reopening has been done. As a matter of fact, he Revenue is not in appeal against this order of learned CIT(A). Thus we hold that learned CIT(A) has erred in upholding part of the disallowance u/s. 14A, when he held at the threshold that no disallowance u/s. 14A is permissible in as much as no disallowance was done on the issue on which reopening was made. Accordingly, I set aside the order of learned CIT(A) and delete the disallowance. Computation of deduction u/s 14A - HELD THAT - Hon'ble Apex Court in the case of Maxopp Investment 2018 (3) TMI 805 - SUPREME COURT has upheld Hon'ble Punjab Haryana High Court decision in the case of PCIT vs. State Bank of Patiala 2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT wherein restriction of disallowance u/s. 14A to the extent of exempt income earned has been upheld. Hence, it is now settled that no disallowance can be done over and above exempt income earned. Now in this case, it is the submission of learned Counsel of the assessee that the assessee has not earned any exempt income in as much as dividend income of ₹ 14,077/- has been offered to tax, hence, no disallowance u/s. 14A is permissible. Thus find in agreement with the above said proposition - Assessing Officer requires to examine this aspect that the assessee has not shown any exempt income and whatever dividend income has been earned has been offered to tax. If above is found factually correct, no disallowance u/s. 14A is sustainable. Hence, this issue allowed for statistical purposes.

Summary

Issues:
1. Re-assessment made under section 147 without any addition/disallowance on the issue for which the assessment was reopened.
2. Disallowance under section 14A r.w. Rule 8D.

Analysis:

A.Y. 2012-13:

1. The first issue pertains to the re-assessment made under section 147 without any addition/disallowance on the issue for which the assessment was reopened. The Assessing Officer (AO) reopened the assessment based on a loan transaction but proceeded to make a disallowance under section 14A during the reassessment. The CIT(A) upheld part of the disallowance under section 14A despite acknowledging that no disallowance was made on the issue for which the assessment was reopened. The ITAT held that as per the jurisdictional High Court decision, no disallowance under section 14A is permissible if no disallowance was done on the issue for which the assessment was reopened. Consequently, the ITAT set aside the CIT(A) order and deleted the disallowance under section 14A.

2. The second issue involves the disallowance under section 14A r.w. Rule 8D. The CIT(A) confirmed a disallowance under Rule 8D despite the assessee's argument that the dividend income subject to tax was not treated as tax exempt. The ITAT, relying on the jurisdictional High Court decision, held that no disallowance can exceed the exempt income earned. As the dividend income was offered to tax, the ITAT found no basis for the disallowance under section 14A. Therefore, the ITAT allowed the appeal for A.Y. 2012-13.

A.Y. 2015-16:

1. In the case for A.Y. 2015-16, the issue revolved around the disallowance under section 14A. The CIT(A) confirmed a disallowance despite the assessee earning dividend income that was offered to tax. The ITAT referred to relevant court decisions upholding the restriction of disallowance under section 14A to the extent of exempt income earned. The ITAT agreed with the assessee's contention that no disallowance is permissible when no exempt income is earned and offered to tax. Consequently, the ITAT allowed the appeal for A.Y. 2015-16 for statistical purposes.

In conclusion, the ITAT Mumbai ruled in favor of the assessee for both A.Y. 2012-13 and A.Y. 2015-16, setting aside the disallowances under section 14A based on the absence of disallowances on the issues for which the assessments were reopened and the dividend income being offered to tax.