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2020 (9) TMI 579 - HC - Income TaxAddition u/s 14A - exempt income earned during the assessment year - HELD THAT - Tribunal held that the Assessing Officer is not justified in making excessive disallowance and that the CIT(A) rightly restricted the disallowance to the extent the dividend income declared by the assessee. In fact the tribunal records that the revenue could not controvert the findings rendered in the case of Joint Investments Private Limited Vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT As held in GODREJ AND BOYCE MFG. CO. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT Sub-s. (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. Sub-s. (3) of s. 14A provides for the application of sub-s. (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. The above legal position has been rightly followed by the tribunal while deciding the assessee's case and therefore, rightly dismissed the appeal filed by the revenue.
Issues:
1. Interpretation of Section 14A of the Income Tax Act, 1961 regarding disallowance of expenses in relation to exempt income. 2. Correctness of restricting disallowance to the extent of exempt income earned during the assessment year. 3. Comparison of decisions by different High Courts on the application of Section 14A. Analysis: 1. The appeal before the Madras High Court involved the interpretation of Section 14A of the Income Tax Act, 1961. The central issue was whether the Tribunal was correct in restricting the disallowance made under Section 14A read with Rule 8D to the extent of exempt income earned during the assessment year. The appellant, the Revenue, challenged the order passed by the Income Tax Appellate Tribunal Bench 'B', Chennai, which had partly allowed the assessee's appeal and restricted the disallowance to the extent of exempt income. The Substantial Question of Law raised in the appeal focused on the statutory provisions and the assessing officer's obligation under Section 14A read with Rule 8D. 2. The High Court considered the arguments presented by both parties. The Tribunal's decision was influenced by an earlier ruling of the Chennai Bench in a different case and the Commissioner of Income Tax (Appeals)'s order. The High Court referred to a similar case where one of the judges was involved, emphasizing that the substantial question of law in the present appeal mirrored the one decided in the previous case. The Tribunal's stance was that the Assessing Officer should not make excessive disallowance and that the disallowance should be restricted to the extent of dividend income declared by the assessee. 3. The High Court further referenced decisions by other High Courts to support its analysis. It mentioned a case from the Delhi High Court and another from the Bombay High Court, highlighting the principles and procedures to be followed by the Assessing Officer under Section 14A. The Court emphasized the importance of determining the expenditure incurred in relation to income that does not form part of the total income of the assessee. The judgment underscored the necessity for the Assessing Officer to objectively assess the correctness of the claim made by the assessee regarding such expenditures. 4. Ultimately, the High Court upheld the Tribunal's decision and dismissed the Revenue's appeal. The Court concurred with the Tribunal's application of the legal principles and reasoning, leading to the rejection of the Revenue's claim. The judgment concluded by dismissing the appeal and ruling in favor of the assessee, aligning with the legal interpretations and precedents discussed throughout the analysis.
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