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2015 (1) TMI 1107 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D of the IT Rules - Held that - Keeping in view the ratio laid down by the Hon ble Jurisdictional High Court in the case of CIT Vs Holcim India (P.) Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT are of the considered view that no disallowance u/s 14A of the Act can be made if there is no income earned. - Decided in favour of assessee. Addition to income - disallowance of 20% out of various expenses - Held that - AO completed the assessment on 21.12.2010 whereas he has issued the show cause notice vide order dated 16.12.2010 asking the assesee to file its reply by 21.12.2010. We are of the view that the AO has not given sufficient time to the assessee to file its complete reply alongwith supporting documents for substantiating its claim. No doubt that assessee has filed its reply on the date of assessment i.e. 21.12.2010, but in our opinion sufficient time has not been granted by the AO to the assessee for substantiating its claim, which is contrary to the principles of natural justice. Similarly, the Ld. CIT(A) has also taken in a routine manner the additional evidence filed by the assessee. No doubt that after taking the Remand Report from the AO, Ld. CIT(A) has decided the issue in dispute against the assessee. Thus the issue involved require thorough examination at the level of the AO, after providing adequate opportunity of hearing to the assessee - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Invocation of the provisions of Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. 2. Disallowance of Rs. 9,37,904/- under Section 14A. 3. Addition of Rs. 6,62,012/- to the income of the assessee company. 4. Disallowance of 20% out of various expenses amounting to Rs. 34,51,270/-. Detailed Analysis: Issue 1 & 2: Invocation of Section 14A and Disallowance of Rs. 9,37,904/- The primary contention was whether the provisions of Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules, could be invoked when no dividend income was received by the assessee. The assessee argued that the investment was made out of its own funds and no administrative expenses could be attributed to managing the investment portfolio. The AO, however, did not accept this and applied Section 14A r.w. Rule 8D, leading to a disallowance of Rs. 9,37,902/-. Upon appeal, the CIT(A) upheld the AO's decision, referencing the Bombay High Court's decision in M/s Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT, which validated Rule 8D from AY 2008-09. However, the Tribunal found that the jurisdictional High Court in CIT Vs Holcim India (P) Ltd. had ruled that Section 14A cannot be invoked if no exempt income was earned. Consequently, the Tribunal deleted the disallowance of Rs. 9,37,902/-, allowing the appeal in favor of the assessee and against the Revenue. Issue 3 & 4: Addition of Rs. 6,62,012/- and Disallowance of 20% of Expenses The assessee contested the addition of Rs. 6,62,012/- and the disallowance of 20% of various expenses amounting to Rs. 34,51,270/-. The AO issued a show cause notice on 16.12.2010, requiring a reply by 21.12.2010, the same day the assessment was completed. The Tribunal noted that the AO did not provide sufficient time for the assessee to substantiate its claims, which was against the principles of natural justice. Similarly, the CIT(A) did not adequately consider the additional evidence provided by the assessee. The Tribunal observed that the assessee had not been given adequate opportunity to present its case and was in possession of documentary evidence to support its claims. Therefore, the Tribunal set aside the issues related to the addition of Rs. 6,62,012/- and the disallowance of 20% of expenses, remanding them back to the AO for a fresh decision, ensuring adequate opportunity for the assessee to be heard. Conclusion: The appeal was partly allowed for statistical purposes. The Tribunal deleted the disallowance under Section 14A and remanded the issues of addition and disallowance of expenses back to the AO for a fresh examination, ensuring compliance with the principles of natural justice. The order was pronounced in the open court on 20/01/2015.
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