2015 (6) TMI 683 - HC - Income Tax

Disallowance of expenditure - Tribunal deleting the disallowance holding that the disallowance intended to be made under Section 40A(2)(b) was apparently made by the Assessing Officer under Section 37(1) - Held that - It is a common contention of the parties that, it is Section 40A(2)(b) of the Act which was invoked by the Assessing Officer while passing the assessment order and the challenge to the assessment order by the respondent assessee was also in context of Section 40A(2)(b) of the Act. It is clear from the above observations of the Tribunal that it has not examined the appeal on merits and merely dismissed the appeal on the ground that the revenue ought to have filed an amendment application placing reliance upon Section 37 of the Act. We find that the Tribunal has disposed of the appeal without considering the contentions of the parties before it. The Tribunal was obliged to adjudicate upon the appeal on the basis of the grounds made out by the parties and on examination of the same could have either upheld the order of the Commissioner of Income Tax (Appeals) or set it aside. However, it is not open to the Tribunal to dismiss the appeal without examining the contention of the parties on a ground which is not urged by any of the parties. We also find that the issue raised by the appellant Revenue with regard to allowing the payment of ₹ 13.20 lacs has not been rightly examined by the Tribunal. It merely upheld the order of the Commissioner of Income Tax (Appeals) without considering the grievance of the Revenue. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Deduction of expenditure from the preceding assessment year.
2. Disallowance under Section 40A(2)(b) of the Income Tax Act.

Analysis:
1. The appeal before the Bombay High Court under Section 260A of the Income Tax Act, 1961 challenged the order passed by the Income Tax Appellate Tribunal regarding the deduction of expenditure from the preceding assessment year. The appellant raised questions of law concerning the justification of allowing a deduction of a specific amount pertaining to the previous assessment year. The appellant contended that under the mercantile system of accounting, the said expenditure was not allowable as a deduction against the profit of the current year. The dispute centered around the treatment of the expenditure incurred in the earlier year and its allowance in the subsequent assessment year.

2. The second issue involved the disallowance under Section 40A(2)(b) of the Income Tax Act. The respondent assessee had made payments to its sister company for various expenses related to running India operations. The Assessing Officer disallowed the entire expenditure under Section 40A(2)(b) of the Act, including an amount pertaining to the previous assessment year. On appeal, the Commissioner of Income Tax (Appeals) partly allowed the appeal, leading to further proceedings before the Tribunal. The Tribunal observed discrepancies in the arguments presented by both parties and concluded that the appeal filed by the department was flawed. The Tribunal dismissed the appeal without delving into the merits of the case, leading to the High Court setting aside the Tribunal's order for fresh disposal.

3. The High Court found that the Tribunal failed to consider the contentions of the parties adequately and disposed of the appeal without examining the issues raised by the appellant Revenue. The Court emphasized that the Tribunal should have adjudicated based on the grounds presented by the parties and examined the contentions before making a decision. The High Court concluded by setting aside the Tribunal's order and remanding the case for fresh disposal, highlighting the importance of a thorough examination of the issues raised by the parties for a just decision.