2017 (8) TMI 187 - HC - Income Tax

Addition u/s 14A - whether Tribunal has erred in holding that 10% of the tax free dividend income disallowed by the Appellant is not in accordance with the provisions of section 14A ? - Held that - Upon perusal of the grounds of appeal before the Tribunal so also before the Commissioner it no way transpires that the appellant herein had raised any specific ground that the Assessing Officer had not arrived at the satisfaction about disallowance made by the appellant-company under Section 14A of the Act is improper the same is being sought to be raised for the first time in the present appeal the same would not be permissible. The findings have been arrived concurrently by the authorities in this regard. Section 14A applicable on dividend income/on which dividend distribution tax has already been paid - Held that - the same is covered by the case of Godrej & Boyce Manufacturing Co. Ltd.(2017 (5) TMI 403 - SUPREME COURT OF INDIA). Appeal admitted on question (b) Whether on the facts and circumstances of the case the Tribunal erred in holding that the strategic investment in its group companies namely Punjab Chemicals & Corp Protection Limited Transmetal Limited and Transpek Silox Limited are to be considered for computing the disallowance under section 14A of the Act?

Summary

Issues:
1. Interpretation of section 14A of the Income Tax Act for disallowance of tax-free dividend income.
2. Consideration of strategic investments in group companies for computing disallowance under section 14A.
3. Applicability of section 14A to dividend income on which dividend distribution tax has already been paid.

Analysis:

1. The appellant raised a question regarding the Tribunal's decision on disallowing 10% of tax-free dividend income under section 14A of the Act. The senior advocate for the appellant conceded that the issue related to the dividend income on which dividend distribution tax had already been paid was no longer relevant due to a judgment of the Apex Court. However, the appellant argued that the Assessing Officer did not record satisfaction before passing the order, which was not considered by the Tribunal.

2. The appellant contested the inclusion of strategic investments in group companies for computing the disallowance under section 14A. The senior advocate argued that the Tribunal misinterpreted a previous judgment and that the matter was pending before the Court in an appeal filed by the Revenue. The respondent supported the Tribunal's decision.

3. The Tribunal's order was examined concerning the grounds of appeal raised by the appellant. It was noted that the appellant did not specifically challenge the Assessing Officer's satisfaction regarding the disallowance made under section 14A. The Court stated that raising this issue for the first time on appeal was impermissible, as the findings were concurrent across authorities.

4. The Court acknowledged that the issue related to the applicability of section 14A to dividend income on which dividend distribution tax had already been paid was settled by a previous judgment. However, the question regarding the consideration of strategic investments in group companies for computing disallowance under section 14A was deemed to raise a substantial question of law, leading to the admission of the appeal on this particular issue.

5. The respondent waived service, and the Court proceeded with the admission of the appeal solely on the substantial question of law raised regarding the consideration of strategic investments for computing disallowance under section 14A.