2019 (3) TMI 215 - AT - Income Tax

Addition u/s. 14A r.w. Rule 8D - no satisfaction has been recorded by the CIT (A) as envisaged u/s. 14A (2) & (3) - Power of CIT(A) regrading enhancement - fresh source that has not been subject of assessment - HELD THAT - In the instant case we observe that the Commissioner of Income Tax (Appeals) before making disallowance u/s. 14A has discussed various judicial pronouncements but has not recorded his satisfaction as to why disallowance is warranted. AR has further demonstrated from the Balance Sheet of assessee as on 31-03-2011 that own funds to the assessee are much more than the investment made. After considering the documents on record and various decisions, we are of considered view that the Commissioner of Income Tax (Appeals) has erred in exceeding his jurisdiction by enhancing income from a fresh source that was neither part of return of income nor touched upon by the Assessing Officer in proceeding u/s. 143(3) of the Act. Consequently, the impugned order is modified and enhancement made by Commissioner of Income Tax (Appeals) is set aside. - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of Commissioner of Income Tax (Appeals) in enhancing income from a fresh source not subject to assessment.
2. Disallowance under section 14A r.w. Rule 8D.

Issue 1: Jurisdiction of Commissioner of Income Tax (Appeals) in enhancing income from a fresh source not subject to assessment:
The appeal raised concerns regarding the Commissioner of Income Tax (Appeals) enhancing the income by making an addition under section 14A r.w. Rule 8D. The appellant argued that the Commissioner of Income Tax (Appeals) exceeded jurisdiction by enhancing income from a new source not previously assessed. The appellant cited various precedents, including the case of Ram Infrastructure Ltd., emphasizing that the Commissioner of Income Tax (Appeals) cannot introduce a new source of income during the first appellate proceedings. The appellant further contended that even on merits, the disallowance under section 14A was not justified as the own funds of the assessee exceeded the investments made. Additionally, it was highlighted that the Commissioner of Income Tax (Appeals) failed to record satisfaction before making the disallowance under section 14A r.w. Rule 8D.

Issue 2: Disallowance under section 14A r.w. Rule 8D:
The Tribunal observed that the Assessing Officer did not address the disallowance under section 14A r.w. Rule 8D during the assessment proceedings, focusing only on a partial disallowance of the deduction claimed under section 80IA of the Act. The Commissioner of Income Tax (Appeals) then enhanced the income by invoking section 14A r.w. Rule 8D, which was considered a new source of income. Citing the precedent set by the Co-ordinate Bench in the case of Ram Infrastructure Ltd., the Tribunal held that the Commissioner of Income Tax (Appeals) had overstepped his jurisdiction by introducing a fresh source of income not previously considered. The Tribunal emphasized the necessity of recording satisfaction before invoking Rule 8D, which was found lacking in the Commissioner of Income Tax (Appeals) decision. Ultimately, the Tribunal set aside the enhancement made by the Commissioner of Income Tax (Appeals) under section 14A r.w. Rule 8D, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, emphasizing that the Commissioner of Income Tax (Appeals) had exceeded jurisdiction by enhancing income from a new source not part of the original assessment. The Tribunal also highlighted the importance of recording satisfaction before making disallowances under section 14A r.w. Rule 8D, ultimately setting aside the enhancement made by the Commissioner of Income Tax (Appeals).