2019 (4) TMI 552 - AT - Income Tax

Disallowance u/s 14A - not earned any exempt income - withdrawal of suo moto disallowance before the AO itself - HELD THAT - Issue relating to request for withdrawal of suo moto disallowance before the Learned CIT(A) whether can at all been entertained is not required to be dealt with in this particular case before us. Respectfully relying upon Corrtech Energy 2014 (3) TMI 856 - GUJARAT HIGH COURT we do not hesitate to delete the disallowance u/s 14A r.w.r. 8D particularly in view of the fact that the assessee neither have any exempt income nor earned dividend income in the case in hand before us. Decided in favour of assessee.

Summary

Issues involved:
- Disallowance under section 14A of the Income Tax Act, 1961 when no exempt income was earned by the assessee.
- Granting relief on disallowance made by the assessee beyond the return of income without a formal revised return.

Analysis:

Issue 1: Disallowance under section 14A when no exempt income was earned:
The appeal was against an order passed by the Commissioner of Income Tax (Appeals) – 1, Ahmedabad under section 143(3) of the Income Tax Act, 1961. The assessee had invested in shares of certain companies but had not earned any exempt or dividend income. The Assessing Officer (AO) disallowed expenses under section 14A r.w.Rule 8D, which was confirmed by the CIT(A). However, the assessee argued that since there was no exempt income, section 14A should not apply. The Co-ordinate Bench had granted relief in a similar case where no exempt income was earned. The tribunal agreed with the assessee, citing judicial precedents that disallowance under section 14A cannot exceed the amount of tax-exempt income. Therefore, the tribunal held that section 14A cannot be invoked when no exempt income was earned, and the disallowance was deleted.

Issue 2: Granting relief on disallowance made by the assessee beyond the return of income:
The second issue was whether the CIT(A) was justified in granting relief on the disallowance made by the assessee beyond the return of income without a formal revised return. The tribunal endorsed the CIT(A)'s decision, stating that the mistake or inadvertence on the part of the assessee in offering income for tax incorrectly should not prevent the correct assessment of income. Citing various judgments, the tribunal held that if an assessee is over-assessed due to a mistake, the Revenue must ensure only legitimate tax dues are collected. The tribunal concluded that the CIT(A) was correct in granting relief on the disallowance made by the assessee, even beyond the return of income, as it was permissible under law.

In conclusion, the tribunal dismissed the Revenue's appeal, allowing the assessee's appeal and deleting the disallowance under section 14A r.w.Rule 8D due to the absence of exempt income. The tribunal upheld the principle that tax should only be collected as provided under the law, and an assessee should not be penalized for offering income incorrectly if it was not taxable.