2021 (3) TMI 620 - AT - Income Tax

Disallowance u/s 14A - contention of the assessee that, no expenditure has been incurred for earning income, has been rejected by the lower authorities on the ground that some man power must have been required for monitoring financial activity or earning of income relating to dividends as investment - HELD THAT - The lower authorities have held that even the statutory audit must have also been verified whether the amount of dividend received from the investment/re-investment is accurate/properly accounted for in the assessee s books of accounts and, therefore, some expenditure of the audit also relates to the activity of earning dividend income. Once the Rule 8D of the Rules has been made applicable, the disallowance in terms of Rule 8D(2)(ii) is automatic and there is no option left with the Assessing Officer except to estimate the disallowance as per rules. In view of the detailed findings of the learned CIT(A) on the issue in dispute, we do not find any error in the order of the learned CIT(A). Accordingly, we uphold the same. The ground no. 1 of the appeal is dismissed. Disallowance carry forward of business/unabsorbed depreciation in absence of evidences - HELD THAT - CIT(A) has noticed that the assessee has already filed rectification application before the Assessing Officer which was pending. We agree with the finding of the learned CIT(A) that when the issue is already pending before the learned Assessing Officer for rectification, it is not appropriate for her to decide on that issue in appellate proceedings. We, accordingly, concur with the findings of the learned CIT(A) on the issue in dispute. The ground no. 2 of the appeal is dismissed.

Issues:
1. Disallowance of expenditure under Section 14A of the Income-tax Act, 1961.
2. Disallowance of set off of brought forward business loss and unabsorbed depreciation.
3. Levying of interest under section 234B of the Act.

Analysis:
1. Disallowance of Expenditure under Section 14A:
- The appellant contested the disallowance of expenditure of ?6,50,090 under Section 14A of the Act, claiming no actual expenditure was incurred in earning exempt dividend income.
- The Assessing Officer invoked Rule 8D and disallowed 0.5% of the average investment, which was upheld by the CIT(A) based on the criteria of recording dissatisfaction and the necessity of some expenditure for monitoring financial activities.
- The Tribunal found no error in the CIT(A)'s order, as Rule 8D mandates automatic disallowance in such cases, and upheld the decision to dismiss the appeal on this ground.

2. Disallowance of Set Off of Brought Forward Losses:
- The Assessing Officer did not allow the carry forward of business loss and unabsorbed depreciation due to lack of evidence submitted by the assessee.
- The CIT(A) noted a pending rectification application filed by the assessee and deemed it inappropriate to decide on the issue in appellate proceedings.
- The Tribunal concurred with the CIT(A)'s decision, directing the Assessing Officer to decide on the rectification application if pending, in the interest of justice.

3. Levying of Interest under Section 234B:
- The CIT(A) had levied interest under section 234B of the Act, which was not specifically addressed in the Tribunal's detailed analysis.

Conclusion:
The Tribunal upheld the disallowance of expenditure under Section 14A, citing the necessity of some expenditure for monitoring financial activities related to earning dividend income. The decision to dismiss the appeal on this ground was supported by the automatic application of Rule 8D. Additionally, the Tribunal agreed with the CIT(A) on the issue of disallowance of set off of brought forward losses due to a pending rectification application. The Tribunal directed the Assessing Officer to decide on the rectification application if pending. The issue of levying interest under Section 234B was not elaborated upon in the detailed analysis provided.

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