2016 (5) TMI 949 - HC - Income Tax

Disallowance u/s 14A - whether the observations in the decision of Maxopp Investment (2011 (11) TMI 267 - Delhi High Court ) to the effect that the AO has to record reasons as to why the claim of the Assessee in respect of the expenditure incurred for making the investment for the purposes of Section 14A should be discarded was only obiter dicta and therefore not a binding precedent as far as the ITAT was concerned? - ITAT deleted the disallowance - Held that - Decision of the Maxopp Investment (supra) specific to the issue of AO having to record reasons prior to making a disallowance under Section 14-A of the Act has been consistently followed not only by this Court in subsequent decisions but by the ITAT as well. In any event, the Court is informed that the Revenue s Special Leave Petition against the decision in Maxopp Investment (supra) is pending consideration in the Supreme Court. Apart from the fact that no specific question in that regard has been raised in the memorandum of the present appeal, the Court finds that the AO applied Rule 8D of the Rules after being unable to determine what expenditure was incurred by the Assessee for the purposes of Section 14A. Therefore, remanding the issue to the AO would have served no useful purpose.No substantial question of law arises.

Summary

Issues: Condonation of delay in filing the appeal, Disallowance under Section 14A of the Income Tax Act, 1961, Application of Rule 8D of the Income Tax Rules, 1962, Binding precedent of previous court decisions, Prospective application of Rule 8D, Remand of matter to the Assessing Officer, Substantial question of law

In the present judgment, the Court first addressed the issue of condonation of delay in filing the appeal. The delay was condoned for reasons stated, and the application was disposed of. Moving on to the main issue, the appeal by the Revenue challenged the ITAT's order concerning the disallowance under Section 14A of the Income Tax Act, 1961. The ITAT, following a previous decision, had deleted the disallowance made by the Assessing Officer by applying Rule 8D of the Income Tax Rules, 1962. The Court considered two points raised by the Revenue. The first point contended that the observations in the previous decision were not binding on the ITAT. However, the Court held that the decision had been consistently followed and was pending consideration in the Supreme Court. The second point argued that even if the AO wrongly applied Rule 8D, it was prospective and not applicable to the Assessment Year in question. The Court disagreed, stating that remanding the matter to the AO would serve no purpose as the AO had applied Rule 8D due to the inability to determine the expenditure incurred by the Assessee. Consequently, the Court dismissed the appeal, concluding that no substantial question of law arose in the case.