2024 (11) TMI 682 - AT - Income Tax

Addition u/s 14A r.wr. 8D - suo-moto disallowance of the assessee - Mandation to record satisfaction - CIT(A) deleted addition as AO failed to record the satisfaction for invoking section 14A while making the disallowance - HELD THAT - ITAT 2021 (6) TMI 1178 - ITAT PUNE had set aside the impugned issue for a limited purpose for verification of suo-moto disallowance claimed to be made by the assessee and whether the suo-moto disallowance was 0.5% or more. Thus, in our opinion the impugned issue was set aside for a very limited purpose. However, Ld.AR vehemently argued that it was set aside for reworking hence AO had to consider all the things and therefore, Ld.CIT(A) was correct in deleting the disallowance. We do not agree with the submission of Ld.AR, we have already stated that the ITAT had set aside the impugned issue for a limited purpose. CIT(A) had exceeded the jurisdiction and travelled to the area which was already decided by the ITAT. The ITAT had already held that there was proper satisfaction recorded by the AO. Once the ITAT had held that there was satisfaction recorded by the AO the ld.CIT(A) do not have any jurisdiction to adjudicate that issue again. Therefore, in this case the Ld.CIT(A) has exceeded the jurisdiction. CIT(A) discussed availability of funds with the Assessee, however, as seen from the order of the ITAT, this was not the ground on which ITAT had set-aside. Therefore, in this aspect also, the ld.CIT(A) has exceeded his jurisdiction. We again reiterate that the ITAT had set-aside the issue for a Limited Purpose of Verification of suo-moto disallowance made by assessee. Therefore, ld.CIT(A) has no jurisdiction to venture into any other area. Therefore, CIT(A) has erred in deleting the disallowance. The assessee has submitted before us that assessee had made a suo-moto disallowance in the Return of Income. AO had calculated disallowance under section 14A read with rule 8D after considering the suo-moto disallowance - AO has already considered the suo-moto disallowance made by AO. Accordingly, disallowance made under section 14A read with rule 8D is upheld - Decided in favour of revenue.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the disallowance made by the Assessing Officer (AO) under Section 14A read with Rule 8D due to alleged failure to record satisfaction.
2. Whether the CIT(A) exceeded jurisdiction by addressing issues beyond the limited purpose for which the matter was remanded by the Tribunal.
3. Whether the disallowance under Section 14A read with Rule 8D was justified given the facts and circumstances, including the availability of sufficient interest-free funds.

Detailed Analysis:

Issue 1: Deletion of Disallowance under Section 14A read with Rule 8D

The central question was whether the CIT(A) was correct in deleting the disallowance made by the AO under Section 14A read with Rule 8D. The CIT(A) held that the AO failed to record the necessary satisfaction for invoking Section 14A, which is a prerequisite for making such disallowance. The CIT(A) emphasized that the AO did not pinpoint any specific expenses incurred to earn exempt income and failed to record satisfaction before applying Rule 8D. The CIT(A) relied on the Supreme Court decision in Godrej and Boyce Mfg. Co. Ltd., which mandates that satisfaction must be recorded by the AO to justify disallowance under Section 14A. However, the Tribunal found that the CIT(A) erred in this conclusion, as the ITAT had previously determined that the AO had indeed recorded satisfaction, and thus the CIT(A) lacked jurisdiction to revisit this finding.

Issue 2: Jurisdiction of CIT(A) and Scope of Remand

The Tribunal examined whether the CIT(A) exceeded its jurisdiction by addressing issues beyond the limited scope of remand. The ITAT had remanded the matter for the specific purpose of verifying the "suo-moto disallowance" claimed by the assessee. The Tribunal noted that the CIT(A) ventured into areas already decided by the ITAT, such as the satisfaction recorded by the AO, which was beyond the remand's limited purpose. The Tribunal held that the CIT(A) overstepped its jurisdiction by addressing issues outside the remand's scope, thereby invalidating the deletion of disallowance.

Issue 3: Justification of Disallowance under Section 14A

The Tribunal also considered whether the disallowance under Section 14A was justified, given the facts, including the availability of sufficient interest-free funds. The CIT(A) had found that the assessee had sufficient surplus funds, which were presumed to be used for investments yielding exempt income, negating the need for disallowance of interest expenses. The CIT(A) cited various judicial precedents supporting the view that when own funds exceed investments, no disallowance under Section 14A is warranted. However, the Tribunal disagreed, emphasizing that the AO had already considered the suo-moto disallowance made by the assessee and calculated the disallowance accordingly. The Tribunal upheld the AO's disallowance, finding no merit in the CIT(A)'s reasoning.

Conclusion:

The Tribunal allowed the Revenue's appeals for all three assessment years, reinstating the disallowance made by the AO under Section 14A read with Rule 8D. The Tribunal concluded that the CIT(A) had exceeded its jurisdiction and failed to adhere to the limited purpose of the remand. The Tribunal emphasized the importance of recording satisfaction by the AO and upheld the disallowance based on the facts of the case and prior ITAT findings.