2017 (2) TMI 212 - AT - Income Tax

Disallowance made u/s 14A - Held that - We have noticed earlier that the investments held by the assessee included investments made in the subsidiaries, bonds, debentures, growth scheme of mutual funds. The interest from bonds and debentures are not exempt and the growth schemes of mutual funds do not yield any dividend. The investments made in subsidiary companies, according to the assessee, are strategic investments. Further the assessee has submitted that it has carried out few transactions during the year under consideration only in the mutual funds by way of withdrawing money from the brought forward balance. Accordingly it was submitted that the provisions of Rule 8D should not have been mechanically applied under the facts of the present case. We find merit in the above said submissions of the assessee. A.R also submitted that there is no estoppel against the law and hence the assessee could plead for rectification of disallowance wrongly made by the assessee. We agree with the said contentions of the assessee also. The purpose of assessment is to determine the correct total income of the assessee. Hence wrong application of provisions of the Act needs to be corrected in order to arrive at the correct total income. We have noticed that certain vital facts concerning the investments have not been properly dealt with both by the assessee as well as the tax authorities. Hence, we are of the view that the issue relating to disallowance u/s 14A of the Act requires fresh examination at the end of the AO. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining the same afresh.

Summary

Issues:
1. Disallowance made under section 14A of the Act.
2. Barred cross objection filed by the assessee.
3. Disallowance for computing book profit under section 115JB of the Act.
4. Exclusion of certain investments for disallowance under section 14A.
5. Entitlement to raise new claims before the Tribunal.
6. Tax effect involved in the appeal of the revenue.

Analysis:

1. The appeal and cross objection were against the disallowance made under section 14A of the Act. The assessee initially computed the disallowance at a certain amount but later revised it. The AO increased the disallowance, leading to a higher amount. The dispute centered around the correct computation of disallowance under section 14A.

2. The cross objection filed by the assessee was initially barred by limitation. However, the delay was condoned, and the cross objection was admitted for consideration.

3. The issue of disallowance for computing book profit under section 115JB of the Act was also contested. The AO and the assessee had differing views on the calculation method, leading to discrepancies in the amount to be added to the book profit.

4. The exclusion of certain investments for the purpose of computing disallowance under section 14A was a crucial point of contention. The assessee argued that specific investments should be excluded based on their nature and income realization, which affected the disallowance calculation.

5. The assessee claimed the right to raise new claims before the Tribunal, emphasizing that there is no estoppel against the law. The argument was supported by a decision from the jurisdictional High Court.

6. The tax effect involved in the revenue's appeal was less than the specified amount, leading to a discussion on whether the appeal should be dismissed based on the tax effect. The cross objection filed by the assessee was deemed separate and required independent adjudication.

The Tribunal found merit in the submissions made by the assessee regarding the investments and the application of Rule 8D for disallowance under section 14A. The issue was remanded to the AO for fresh examination. Additionally, the Tribunal upheld the decision of the CIT(A) regarding the exclusion of disallowance attributable to long-term capital gain for computing book profit under section 115JB. However, due to the remand on the disallowance issue, the calculation of disallowance for book profit was also set aside for reconsideration by the AO. Ultimately, the appeal filed by the revenue was partly allowed, and the cross objection of the assessee was treated as allowed.