2022 (6) TMI 1468 - HC - Income Tax

Disallowance u/s 14A in course of the assessment undertaken under Section 153A - disallowance made under Section 14A while computing of Book Profit under Section 115JB - HELD THAT -The present Tax Appeal is Admitted on the following substantial questions of law. (i) Whether in the facts and circumstances of the case, could it not be said that the Appellate Tribunal committed an error in deleting the additions made on the count of fictitious losses from National Multi Commodity Exchange trading and also the disallowance under Section 14A in course of the assessment undertaken u/s 153A more particularly having regard to the import purport and the language of the said provision, holding that the additions have to be confined to the incriminating material found during the course of search u/s 132(1) even though there is no stipulation of the Section 153A and notwithstanding that there was no assessment u/s143(3) despite the fact that return was processed u/s 143(1) and no scrutiny proceedings were undertaken u/s 143(3) of the Act? (ii) Whether in the facts and in the circumstances of the case and in law the Appellate Tribunal has erred in holding that disallowance under Section 14A of the Act cannot exceed the exempt income earned by the assesses? (iii) Whether in the facts and in the circumstances of the case and in law the Appellate Tribunal was justified in excluding the disallowance made under Section 14A while computing of Book Profit under Section 115JB ignoring the clause (f) of Explanation1 to Section 115JB(2)? (iv) Whether Appellate Tribunal committed an error in deleting the additions in respect of the allowance of losses taken from M/s. Mari Gold Vanijya Private Limited, Kolkata without appreciating the entire set of facts attended to the said aspect, whether the transaction evidenced that it was in the nature of accommodation entry and whether the Tribunal acted perverse on facts on that count?

Summary

Issues Involved:
1. Interpretation of provisions under Section 153A regarding additions made on fictitious losses and disallowance under Section 14A.
2. Limitation on disallowance under Section 14A in relation to exempt income earned by the assesses.
3. Exclusion of disallowance under Section 14A while computing Book Profit under Section 115JB.
4. Deletion of additions in respect of allowance of losses from a specific entity and determination of whether it was an accommodation entry.

Issue 1 - Interpretation of Section 153A provisions:
The High Court deliberated on whether the Appellate Tribunal erred in deleting additions related to fictitious losses and disallowance under Section 14A during an assessment under Section 153A. The court analyzed the scope of Section 153A, emphasizing the requirement for incriminating material found during a search under Section 132(1) of the Act. The judgment scrutinized the absence of a stipulation in Section 153A regarding the scope of additions, especially in the context of no assessment under Section 143(3) despite processing the return under Section 143(1) without scrutiny proceedings.

Issue 2 - Limitation on disallowance under Section 14A:
The Court examined whether the Appellate Tribunal erred in determining that disallowance under Section 14A cannot exceed the exempt income earned by the assesses. This analysis involved a detailed review of the legal provisions and the factual circumstances of the case to ascertain the correct interpretation and application of Section 14A.

Issue 3 - Exclusion of disallowance under Section 14A for Book Profit computation:
In this issue, the Court assessed whether the Appellate Tribunal was justified in excluding the disallowance under Section 14A while computing Book Profit under Section 115JB. The judgment focused on the interpretation of Explanation 1 to Section 115JB(2), particularly clause (f), to determine the correctness of the Tribunal's decision in this regard.

Issue 4 - Deletion of additions related to specific entity's losses:
The High Court analyzed whether the Appellate Tribunal erred in deleting additions concerning losses from a specific entity, M/s. Mari Gold Vanijya Private Limited, Kolkata. The judgment scrutinized the nature of the transaction, considering whether it constituted an accommodation entry. The Court evaluated the factual matrix and determined whether the Tribunal's decision to delete the additions was based on a correct assessment of the facts or if it was deemed perverse.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues addressed by the High Court in this case.