9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (11) TMI 705 - AT - Income TaxDisallowance u/s 14A in respect of expenditure attributable to earning exempt income - whether or not the A.O had validly assumed jurisdiction for dislodging the disallowance that was on a suo-motto basis offered by the assessee u/s 14A and therein substituting the same by that as was computed by him by triggering the mechanism provided in Rule 8D? - HELD THAT - AO had though observed that he was not satisfied with the correctness of the claim of the assessee that no expenditure was incurred in relation to the income which did not form part of its total income, however, he except for making general observations in context of the expenditure claimed by the assessee, viz. general administrative expenses, legal fees, employee salary, general expenses etc. had before rejecting the disallowance that was offered by the assessee on a suo-motto deemed basis, failed to give a clear finding with reference to the assessee s accounts as to how the other expenditure that were claimed by the assessee in respect of its non-exempt income was related to its exempt income. Failure on the part of the A.O to record his satisfaction that having regard to the accounts of the assessee, as placed before him, it was not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee, therein, divests him of the jurisdiction for dislodging the claim of the assessee and substituting the same by an amount arrived at by triggering the mechanism provided in Rule 8D. Accordingly, backed by our aforesaid observations, we are unable to persuade ourselves to subscribe to the view taken by the CIT(A) who had upheld the disallowance made by the A.O u/s 14A of the Act. We, thus, set-aside the order of the CIT(A) and vacate the additional disallowance made by the A.O u/s 14A . Education cess as not allowable as a deduction u/s 40(a)(ii) - HELD THAT - As relying on SESA GOA LIMITED 2020 (3) TMI 347 - BOMBAY HIGH COURT Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act. We, thus, direct the A.O that the education cess paid by the assessee during the year be allowed as a deduction under Sec. 40(a)(ii).
Issues Involved:
1. Disallowance under section 14A in respect of expenditure attributable to earning exempt income. 2. Deduction in respect of education cess paid. Issue-wise Detailed Analysis: 1. Disallowance under section 14A in respect of expenditure attributable to earning exempt income: The primary issue in this case was whether the Assessing Officer (A.O) validly assumed jurisdiction to disallow the expenditure claimed by the assessee under section 14A of the Income Tax Act, 1961. The A.O had disallowed the assessee's suo-motto disallowance of ?4,59,311/- and instead computed the disallowance at ?67,90,998/- using Rule 8D of the Income Tax Rules, 1962. The assessee contended that the A.O did not record any dissatisfaction with the correctness of the assessee's disallowance before invoking Rule 8D, which is a statutory requirement as per the Supreme Court's rulings in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT and Maxopp Investment Ltd. v. CIT. The Tribunal noted that the A.O failed to provide a clear finding with reference to the assessee’s accounts as to how the other expenditure claimed by the assessee was related to its exempt income. The Tribunal concluded that the A.O's failure to record the requisite satisfaction divested him of the jurisdiction to disallow the assessee's claim and substitute it with a disallowance computed under Rule 8D. Consequently, the Tribunal vacated the additional disallowance of ?63,31,687/- made by the A.O under section 14A. 2. Deduction in respect of education cess paid: The second issue was whether the education cess paid by the assessee was allowable as a deduction under section 40(a)(ii) of the Income Tax Act. The CIT(A) had disallowed the deduction, relying on the decision of the Bombay High Court in Lubrizol India Ltd. v. CIT, which dealt with the allowability of surtax. The assessee argued that the education cess should be allowed as a deduction, citing the recent judgment of the Bombay High Court in Sesa Goa Limited v. Joint Commissioner of Income-tax. The Tribunal observed that the Bombay High Court had held that there was no prohibition in claiming deduction of amounts paid towards education cess or any other cess under section 40(a)(ii). The Tribunal, following the High Court's judgment, concluded that the education cess paid by the assessee was deductible and directed the A.O to allow the deduction. Conclusion: The Tribunal allowed the appeals filed by the assessee for both assessment years (A.Y. 2014-15 and A.Y. 2015-16), setting aside the disallowances made by the A.O under section 14A and directing the A.O to allow the deduction of education cess. The Tribunal's decision was based on the failure of the A.O to record the requisite satisfaction for disallowing the expenditure under section 14A and the binding precedent set by the Bombay High Court regarding the deductibility of education cess.
|
