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2019 (1) TMI 674 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - Held that - In the present case assessee himself when confronted has stated that it has incurred expenditure for earning exempt income but could only give a pro rate allocation. Based on the changing stand of assessee ld AO was satisfied that claim of the assessee originally that it has not incurred any expenditure for earning exempt income is correct. Accordingly, the ground No. 2 of the appeal of the assessee is dismissed holding that the ld Assessing Officer has correctly recorded the satisfaction with respect to the correctness of the claim of the assessee and invoking the provisions of Rule 8D of the Income Tax Rules, 1962 for working out disallowance u/s 14A of the Act. On careful perusal of the certificate of the Chartered Accountant, there is certain reference to the records of the company; however no such records were mentioned as to what was examined and how it was examined by the Chartered Accountant for working out the disallowance. It is also true that Hon ble Delhi High Court in ACB INDIA LIMITED (FORMERLY M/S ARYAN COAL BENEFICATIONS (P) LTD. 2015 (4) TMI 224 - DELHI HIGH COURT has held that while working disallowance u/s 14A read with Rule 8D, only those investment which has resulted into exempt income during the year are required to be considered. Addition u/s 14A computation - Held that - AO is directed to decide the issue of disallowance u/s 14A read with Rule 8D afresh in accordance with law. In view of above facts and decision of Honourable Delhi High court in ACB Investments P Ltd 2015 (4) TMI 224 - DELHI HIGH COURT it is further held that the ld Assessing Officer is directed to examine the certificate issued by a Chartered Accountant working out disallowance u/s 14A. If the ld Assessing Officer finds the disallowance worked out by the assessee as per that certificate as correct then disallowance u/s 14A may be restricted to that extent. If the same is found to be incorrect the ld Assessing Officer may decide the issue of the disallowance afresh in accordance with the law. Penalty u/s 271(1)(c) - Disallowance u/s 14A - Held that - The fact shows that in assessee s own case for assessment year 2011 12, the learned CIT(A) has held that no disallowance under section 14 A can be made. Further, the issue before us is squarely covered by the decision of the Hon ble Delhi High Court in CIT vs. Liquid Investments dated 5/10/2010, where the Hon ble High Court has held that issue of disallowance under section 14A of the Income Tax Act was a debatable issue. Even otherwise in the case of the assessee itself for the same assessment year we have held that the disallowance offered by the assessee is on estimated basis and the learned AO has merely applied the provisions of rule 8D of the Income Tax Rules 1962. In assessee s own case in AY 2011-12, CIT (A) has deleted the disallowance u/s 14A of the act. Thus, it shows that the assessee has not furnished any particulars of income, which are incorrect. The issue remains is merely computation of the disallowance. Therefore, we do not find any infirmity in the order of the learned CIT(A) in deleting the above penalty.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Levy of penalty under Section 271(1)(c) of the Income Tax Act. Detailed Analysis: Issue 1: Disallowance under Section 14A of the Income Tax Act Assessment Year 2008-09: The assessee, engaged in trading power and coal, filed its return showing an income of ?174,438,856 and earned dividend income of ?253,850,000. The Assessing Officer (AO) noted that the dividend income did not form part of the total income and the assessee did not attribute any disallowance under Section 14A. The AO, dissatisfied with the assessee's claim of minimal managerial expenses, applied Rule 8D and computed disallowance of ?36,274,516 under Section 14A. The CIT(A) deleted the disallowance on account of interest but upheld the disallowance at 0.5% under Rule 8D(2)(iii). The ITAT directed the AO to re-examine the disallowance with respect to the investments that earned exempt income during the year, following the decision of the Hon'ble Delhi High Court in ACB India Limited v. ACIT. The AO was instructed to verify the correctness of the claim based on the Chartered Accountant's certificate and decide afresh. Assessment Year 2009-10: The assessee filed its return showing an income of ?174,438,856 and earned dividend income of ?484,400,000. The AO, dissatisfied with the assessee's disallowance estimate, applied Rule 8D and computed disallowance of ?55,110,363. The CIT(A) reduced the disallowance to ?42,974,351. The ITAT directed the AO to consider only those investments that earned exempt income and verify the correctness of the Chartered Accountant's certificate, deciding the issue afresh. Assessment Year 2010-11: The assessee filed its return showing an income of ?947,670,950 and earned dividend income of ?235,150,000. The AO, dissatisfied with the assessee's disallowance estimate, applied Rule 8D and computed disallowance of ?45,830,000. The CIT(A) reduced the disallowance to ?43,430,000. The ITAT directed the AO to verify the correctness of the Chartered Accountant's certificate and decide the issue afresh. Issue 2: Levy of Penalty under Section 271(1)(c) of the Income Tax Act Assessment Year 2010-11: The AO levied a penalty of ?14,761,857 under Section 271(1)(c) on account of disallowance under Section 14A. The CIT(A) deleted the penalty, stating that the issue of disallowance under Section 14A was debatable and there was no deliberate furnishing of inaccurate particulars or concealment of income. The ITAT upheld the CIT(A)'s decision, noting that the issue was debatable and the assessee had not furnished incorrect particulars of income. Conclusion: The ITAT directed the AO to re-examine the disallowance under Section 14A for all three assessment years, considering only those investments that earned exempt income and verifying the correctness of the Chartered Accountant's certificate. The penalty under Section 271(1)(c) for the assessment year 2010-11 was deleted as the issue was debatable and there was no deliberate furnishing of inaccurate particulars or concealment of income.
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