2018 (10) TMI 1124 - AT - Income Tax

Disallowance u/s 14A - investment was made by assessee on last day of relevant year - assessee made suo-moto disallowance on the basis of method provided in Rule 8D of IT rules - Held that - Referring to the working of the disallowance u/s 14A we observe that an apparent mistake was pointed out by the assessee during the course of assessment proceedings itself before the Ld.A.O by way of providing the revised calculation of the disallowance u/s 14A r.w.s.8D of the IT rules. It has been consistently held in various judgments that during the course of assessment proceedings if any new claim or a revised claim by way of filing a revised computation of income or placing any material facts on record, then the Assessing Officer is duty bound to assess the correct income of the assessee on that basis. The claim of the assessee cannot be set aside merely by taking the basis that the assessee has suo-moto made disallowance in the income tax return. As perused the above working given by the assessee and are of the considered view that the same is correct and interest disallowance on the alleged investment in SBI Premier Liquid Mutual Fund should have been separately calculated at ₹ 1,05,000/- rather than making it a part of average investment because the specific details of the nexus of interest bearing funds to the investment in the alleged mutual fund are appearing on record. We therefore hold that the disallowance made u/s 14A of the Act r.w.s. 8D of IT rules should be restricted to ₹ 3,47,930/- only. In the result Ground No.1 of the assessee s appeal is allowed. Deduction claimed to reduce the disallowance offered for tax u/s 14A - Held that - The case of M/s. Goetze India Ltd 2006 (3) TMI 75 - SUPREME COURT will not be applicable in the facts of the assessee because in the instant appeal the issue is not related to filing of revised return. Rather in the instant appeal the issue was related only to the correct calculation of disallowance u/s 14A of the Act. It was duly submitted by the assessee during the course of assessment proceedings but no weightage was given by the assessing authority to said calculation. Therefore Ground No.2 of the assessee is also allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961.
2. Valuation of closing stock.

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961:

The appeal pertains to the disallowance under section 14A of the Act for the assessment year 2013-14. The assessee contested the disallowance of ?11,26,876, seeking a revision to restrict it to ?3,47,930. The contention was based on the inadvertent inclusion of an investment of ?4 crores in SBI Premier Liquid Mutual Fund, made for just 7 days, in the calculation of disallowance. The Assessing Officer maintained the disallowance at ?11,26,875, rejecting the revised claim. The CIT(A) also upheld the disallowance citing the precedent of M/s. Goetze India Ltd. The Tribunal considered the revised claim and held that the disallowance should be limited to ?3,47,930 only, as the investment in the mutual fund for 7 days had a direct nexus to borrowed funds. The Tribunal emphasized that during assessment proceedings, new or revised claims must be considered to determine the correct income, as supported by the Supreme Court's ruling in the case of National Thermal Power Company Ltd.

Issue 2: Valuation of Closing Stock:

The assessee also challenged the addition made towards the valuation of closing stock under section 145A of the Act amounting to ?55,52,139. The CIT(A) partially allowed the appeal related to the valuation of closing stock. However, no relief was granted on the disallowance under section 14A of the Act. The Tribunal did not delve into this issue as the appeal before it solely focused on the disallowance under section 14A of the Act.

In conclusion, the Tribunal allowed the assessee's appeal concerning the disallowance under section 14A of the Act, reducing the disallowance to ?3,47,930. The Tribunal emphasized the importance of considering revised claims during assessment proceedings to determine the correct income. The Tribunal also highlighted the distinction between filing a revised return and making a correct calculation of disallowance under section 14A. The decision was based on the specific circumstances of the case and relevant legal precedents, ultimately ruling in favor of the assessee.