2017 (9) TMI 583 - HC - Income Tax

Disallowance u/s 14A - Held that - If the jurisdictional High Court Judgment in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) was held to be binding on the Tribunal, why the Tribunal had to fall back on alternative disallowance computed by the assessee and that too without prejudice has not been clarified at all. In the initial order as well as in the order on the Miscellaneous Application for rectification the Tribunal has assigned the same reasons. We do not think that a without prejudice submission and made strictly in the alternative should have influenced the tribunal to such an extent. It is was for the Tribunal to have extensively carried out the exercise and scrutinise the order of the Assessing Officer, whether the order deserved to be upheld on the issue. That having not been done, we set aside both the initial orders of the Tribunal as also orders on the Miscellaneous Application dated 12th June, 2013 and 7th March, 2014 respectively. We restore Income Tax Appeal to the file of the Tribunal and direct the Tribunal that the same shall be decided on its own merits and in accordance with law. While deciding the appeal afresh Tribunal should allow the assessee to contend that the disallowance worked by the Assessing Officer, particularly the assessee s without prejudice and alternative submission should not influence its final decision. Equally all contentions of the Revenue should also be considered while disposing of the appeal afresh pursuant to our decision.

Summary

Issues:
1. Challenge against the order passed by the Income Tax Appellate Tribunal Bench at Mumbai dated 12th June, 2013.
2. Disallowance of expenditure attributable to earning exempt income under section 14A r.w. with Rule 8D.
3. Rectification application invoking section 254(2) of the Income Tax Act, 1961.
4. Interpretation of the term "without prejudice" in legal submissions.
5. Tribunal's reliance on the balance sheet and jurisdictional High Court judgment.
6. Tribunal's decision-making process and the need for a fresh decision.

Analysis:
1. The writ petition challenged the order of the Income Tax Appellate Tribunal dated 12th June, 2013, concerning the Assessment year 2008-09. The Assessing Officer had considered a total loss declared by the assessee, leading to a dispute over tax payable under section 115JB of the Income Tax Act, 1961. The issue revolved around the disallowance of expenditure attributable to earning exempt income, specifically dividend income under section 10(34). The assessee's argument, based on a previous judgment, contested the attribution of expenditure to dividend income.

2. The Tribunal disagreed with the initial order but ultimately made a disallowance based on the assessee's submissions and the balance sheet evidence. The disallowance was computed under Rule 8D, exceeding the Assessing Officer's calculation. A Rectification Application was filed, which the Tribunal rejected, leading to further legal arguments regarding the interpretation of the term "without prejudice" in the context of legal submissions.

3. The High Court analyzed the Tribunal's decision-making process and found discrepancies in the reliance on the assessee's submissions marked as "without prejudice." The Court emphasized the need for a thorough examination of the Assessing Officer's order and directed the Tribunal to reconsider the appeal afresh, disregarding the previous findings. The Court clarified that all arguments from both parties should be considered in the fresh decision without being influenced by past conclusions.

4. Ultimately, the High Court set aside the initial orders of the Tribunal and the Rectification Application, restoring the Income Tax Appeal to the Tribunal for a new decision based on the merits and in accordance with the law. The Court highlighted the importance of unbiased decision-making and directed the Tribunal to reconsider the appeal without being swayed by past judgments or submissions. The assessee's appeal was disposed of accordingly in light of the Court's conclusions.