2016 (2) TMI 155 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Reduction of disallowance u/s 14A suo-moto in revised return - whether CIT(A) has erred in confirming the disallowance made by the AO under section 14A r.w. Rule 8D? - Held that - AO has not made addition with the help of Rule 8D. The AO has observed that keeping in view the quantum of investment i.e. ₹ 8.9 crores expenses added by the assessee itself at ₹ 21,74,52/- is reasonable expenses, hence, he is satisfied with the accounts of the assessee and does not want to make further enhancement. Now, the assessee wants to go back with the declaration made by it. It is true that Income Tax officer is supposed to determine true taxable income of the assessee as observed by the Hon ble Gujarat High Court in the case of Milton Laminates (supra), but the fact is where is the lapse ? how one can plead that the AO has failed to carry out his exercise ? According to the assessee, the disallowance under section 14A ought to be ₹ 6,93,201/- which it has worked out in the alleged revised return. But, what is basis to work out this disallowance? The assessee could not demonstrate before the AO as to how the expenditure it has added back relating to earning of exempt income were inflated or added back under mistaken fact. Here it is not the case that some statutory benefit was available to the assessee, which by mistake it refrain to claim such benefit. In the present case, the assessee has to work out the expenditure relatable to earning of exempt income, which it has worked out itself. Unless it is pointed out that such working was based on misconception of fact or misconstruction of law, it cannot be allowed to take somersault from the declaration made by it in the return of income. Therefore, the assessee cannot draw any benefit from the judgment cited before us. We do not find any error in the order of the ld. CIT(A), which is upheld. - Decided against assessee

Summary

Issues Involved:
1. Applicability of Rule 8D of the Income Tax Rules, 1962, for the assessment year 2007-08.
2. Validity of the revised return filed by the assessee.
3. Determination of the disallowance under Section 14A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Rule 8D of the Income Tax Rules, 1962, for the assessment year 2007-08:
The primary issue was whether Rule 8D could be applied retrospectively to the assessment year 2007-08. The assessee argued that the Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. v. DCIT, 328 ITR 81, held that Rule 8D is not applicable retrospectively and is only applicable from the assessment year 2008-09. The Tribunal noted that the AO did not make the disallowance using Rule 8D but accepted the disallowance made by the assessee itself in the original return, which was deemed reasonable.

2. Validity of the revised return filed by the assessee:
The assessee filed its original return on 31.10.2007, declaring a total income of Rs. 18,92,950/-. This was later revised on 28.1.2009, reducing the total income to Rs. 4,11,630/-. The revised return included a reduced disallowance under Section 14A from Rs. 21,74,522/- to Rs. 6,93,201/-. However, the AO did not take cognizance of the revised return as it was not filed within the time allowed under Section 139(5) of the Income Tax Act. The Tribunal upheld this view, noting that the revised return was not filed within the permissible period, making it invalid.

3. Determination of the disallowance under Section 14A of the Income Tax Act, 1961:
The assessee initially made a disallowance of Rs. 21,74,522/- in its original return, which was added back as it was related to earning exempt income. The AO accepted this disallowance, considering it reasonable given the assessee's investment of Rs. 8.9 crores in tax-free investments. The assessee argued that this disallowance was based on an erroneous interpretation of Rule 8D, which should not apply for the assessment year 2007-08. The Tribunal referred to the Hon'ble Delhi High Court's judgment in Maxopp Investments Ltd. v. CIT, 347 ITR 272 (Del.), which clarified that the AO must record dissatisfaction with the assessee's claim before determining the disallowance using Rule 8D. Since the AO did not use Rule 8D and was satisfied with the assessee's accounts, the Tribunal found no error in the AO's approach. The Tribunal also noted that the assessee failed to demonstrate how the original disallowance was inflated or based on a mistaken fact, and thus, the declaration made in the original return could not be retracted.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the order of the CIT(A). The Tribunal concluded that the revised return was invalid, Rule 8D was not applicable retrospectively, and the original disallowance made by the assessee was reasonable and correctly accepted by the AO. The appeal was dismissed, and the order pronounced on 10.12.2015.