2019 (6) TMI 1633 - AT - Income Tax

Disallowance u/s 14A - assessee suo moto made disallowance - HELD THAT - The issue is now covered in favour of the assessee by a coordinate bench decision in the case of DCIT vs. Greenland Infracon Pvt Ltd 2018 (11) TMI 1415 - ITAT AHMEDABAD section 14A of the Act can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A of the Act cannot be invoked where no exempt income was earned in the relevant assessment years.No potency in the argument laid on behalf of the Revenue that the CIT(A) allegedly committed error in granting total relief in the matter of disallowance u/s 14A. In our considered view the action of the CIT(A) in granting relief under s.14A on account suo moto disallowance by the assessee and thereby granting relief higher than claimed in the return of income cannot be faulted in law. Appeal of the Revenue is dismissed.

Summary

Issues:
Appeal against CIT(A) order under section 143(3) of Income Tax Act, 1961 for assessment year 2014-15. Disallowance under section 14A and Rule 8D(iii) challenged. Relief granted by CIT(A) without revised return filed.

Analysis:
The appeal before the ITAT Ahmedabad challenged the CIT(A) order regarding disallowance under section 14A and Rule 8D(iii) of the Income Tax Act, 1961 for the assessment year 2014-15. The first issue raised was the deletion of disallowance by the CIT(A) amounting to ?52,59,412 under section 14A and ?16,51,834 under Rule 8D(iii) without any exempt income earned by the assessee. The ITAT referred to a coordinate bench decision in the case of DCIT vs. Greenland Infracon Pvt Ltd, emphasizing that disallowance under section 14A cannot be made if no exempt income was earned, as held by various High Courts. The ITAT concurred with the CIT(A) and dismissed the Revenue's appeal on this ground.

The second issue pertained to the CIT(A) granting relief on the disallowance made by the assessee without a revised return filed. The ITAT endorsed the CIT(A)'s decision, stating that the Revenue must assess the correct income, regardless of whether a revised return was filed, if the assessee shows being over-assessed due to its own mistake. Citing legal precedents, the ITAT emphasized that the Revenue cannot enforce actions of the assessee leading to higher incorrect income declaration. The ITAT held that the CIT(A) did not err in granting relief under section 14A based on the assessee's suo moto disallowance, even exceeding the amount claimed in the return of income.

Ultimately, the ITAT dismissed the appeal on grounds one and two, as the disallowance under section 14A was deleted. Consequently, all other issues raised in the appeal were deemed infructuous. The ITAT upheld the CIT(A)'s decision and declined to interfere in the matter, following the precedent set by the coordinate bench. The appeal was partly allowed based on the above terms, with the decision pronounced in open court on June 11, 2019.