2018 (4) TMI 521 - HC - Income Tax

Assessment u/s 153A - disallowance under Section 14A - Held that - Disallowances were made in the course of the search assessment proceedings. The relief granted by the impugned order was based upon the decision of this Court in CIT-VI v. Taikisha Engineering India Ltd.(2014 (12) TMI 482 - DELHI HIGH COURT) where it was held that unless the AO rejected the explanation or the rationale which induced the assessee to offer particular amount as expenditure with some reasoning, the mere rejection per se cannot be accepted. In this case for both years, the assessee had offered amounts as disallowance claiming them to be expenditure for tax exempt income. The Assessing Officer merely proceeded to reject such amount as expenditure and straightaway applied Rule 8D without adducing any reasons - No substantial question of law arises

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961 in search assessment under Section 153A.

Analysis:
The judgment addressed the issue of disallowance under Section 14A of the Income Tax Act, 1961 in the context of search assessment under Section 153A. The Court referred to similar appeals where disallowances were made during search assessment proceedings. The Court highlighted the importance of the Assessing Officer providing reasoning for rejecting the explanation or rationale behind the claimed expenditure for tax-exempt income. The Court cited a previous decision where it was held that mere rejection of the amount without proper reasoning is not acceptable. In this case, the Assessing Officer directly applied Rule 8D without providing any substantial reasons for rejecting the claimed expenditure, leading to the application of the principle established in the previous case.

The Court concluded that the ITAT's decision was justified as it did not err in its findings, and no substantial question of law was found to arise from the appeal. Therefore, the Court dismissed the appeal based on the same reasoning as in the previous cases. The judgment emphasized the necessity for the Assessing Officer to provide adequate reasoning for disallowing claimed expenditures related to tax-exempt income. The decision reiterated the principle that a mere rejection without proper justification is not sufficient and cannot be accepted. The Court's analysis focused on the procedural aspects of disallowance under Section 14A and the significance of providing reasoned decisions in such matters to ensure fairness and adherence to legal principles.