2016 (1) TMI 35 - AT - Income Tax

Disallowance under section 14A r/w rule 8D - Held that - As could be seen during the assessment proceedings, the assessee also furnished a working computing the disallowance under section 14A r/w rule 8D, which worked out to ₹ 18,45,336. The Assessing Officer, in fact, has accepted the disallowance under rule 8D computed by the assessee. Therefore, from the aforesaid facts, it is very much clear that the maximum disallowance which could have been made under section 14A r/w rule 8D, was to the tune of ₹ 18,45,336. However, as is apparent on record, the assessee itself has made a suo motu disallowance of expenditure to the tune of ₹ 2,49,45,390, which is much higher than the disallowance which could have been made by applying the provisions of rule 8D. Therefore, the assessee having already made disallowance under section 14A, for an amount of ₹ 2,49,45,390, any further disallowance over and above the said amount is not only unreasonable but is against equity, fair play and justice. That being the case, we delete the addition of ₹ 18,45,336, made by the Assessing Officer under section 14A r/w rule 8D. - Decided in favour of assessee

Summary

Issues:
Disallowance under section 14A of the Income Tax Act, 1961 r/w rule 8D

Analysis:
The judgment pertains to an appeal against the order of the Commissioner (Appeals) regarding the disallowance of an amount under section 14A of the Income Tax Act, 1961. The assessee had earned exempt income through dividends but failed to make the necessary disallowance under section 14A. The Assessing Officer called for a working of the disallowance, which the assessee calculated to be &8377; 18,95,141. The Commissioner (Appeals) upheld this disallowance despite the assessee's contention that it had already voluntarily disallowed a significant amount under section 14A. The Tribunal noted that the assessee had made a higher disallowance than what would have been calculated under rule 8D. Therefore, the Tribunal held that any further disallowance was unjustified and deleted the addition made by the Assessing Officer.

The Tribunal emphasized that the disallowance under section 14A had to be computed as per rule 8D for the relevant assessment year. The assessee had voluntarily made a substantial disallowance exceeding what would have been calculated under rule 8D. The Tribunal found that the additional disallowance by the Assessing Officer was unreasonable and against principles of equity and fair play. Consequently, the Tribunal allowed the appeal and deleted the addition of &8377; 18,45,336, as the assessee had already made a higher disallowance voluntarily.

The Tribunal clarified that since the counsel for the assessee only argued on the issue of the addition of &8377; 18,45,336 during the appeal hearing, the other grounds raised by the assessee were deemed to have not been pressed and were dismissed. As a result, the appeal of the assessee was partly allowed, and the order was pronounced in an open court on 30.9.2015.