2019 (7) TMI 614 - HC - Income Tax

Disallowance u/s 14A - CIT(A) deleted the suomotu disallowance made by the assessee and upheld by ITAT - Tribunal held that no disallowance u/s 14A in absence of exempt income - HELD THAT - Tribunal concurred with the findings recorded by the CIT(A) that Section 14A of the Act can be invoked only if the assessee seeks to square off the expenditure against the income which does not form part of the total income under the Act, and in such circumstances, Section 14A of the Act could not have been invoked, more particularly, when no exempt income was earned in the relevant assessment years. The Tribunal has relied on various decisions including the decision of this Court in the case of Corrtech Energy Private Limited, 2014 (3) TMI 856 - GUJARAT HIGH COURT Tribunal also concurred with the findings recorded by the CIT(A) that the mistake or inadvertence on the part of the assessee whereby an income not taxable is wrongly offered for tax will not operate as any kind of estoppel against the assessee regardless whether the revised return was filed or not. If the assessee is in a position to show that it has been over assessed on account of his own mistake, the Revenue is obliged to assess the correct income. - decided against assessee.

Summary

Issues:
1. Interpretation of Section 14A of the Income Tax Act, 1961 regarding disallowance in absence of exempt income.
2. Validity of CIT(A) deleting the suo motu disallowance made by the assessee.

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 14A of the Income Tax Act, specifically regarding the permissibility of disallowance in the absence of exempt income. The Tribunal, in line with judicial precedents, highlighted that disallowance under Section 14A cannot be imposed when no exempt income, such as dividends, was earned by the assessee during the relevant assessment year. Notably, the Tribunal cited decisions from various High Courts, including Delhi, Madras, and Gujarat, which disagreed with the CBDT Circular emphasizing disallowance of expenses related to exempt income. The judicial precedents emphasized that disallowance under Section 14A can only be triggered if the assessee seeks to offset expenditure against income not forming part of the total income. Therefore, the Tribunal upheld the CIT(A)'s conclusion that Section 14A could not be invoked in the absence of exempt income.

2. The second issue pertains to the CIT(A)'s decision to grant relief on the disallowance, which was made suo motu by the assessee, beyond the return of income without a formal revised return. The Tribunal endorsed the CIT(A)'s stance that any mistake or inadvertence by the assessee, resulting in wrongly offering non-taxable income for tax, should not estop the assessee. The Revenue is obligated to assess the correct income, even if the mistake was on the part of the assessee. The Tribunal agreed with the CIT(A)'s detailed analysis on this matter and found no reason to disturb the findings of the Revenue authorities.

In conclusion, the High Court dismissed the Tax Appeal, emphasizing that no substantial question of law was involved in the case. The judgment reaffirmed the Tribunal's decision on the interpretation of Section 14A and the validity of the CIT(A)'s actions regarding the disallowance made by the assessee.