2020 (9) TMI 91 - HC - Income Tax

Disallowance u/s 14A read with Rule 8D - Whether the Tribunal was right and justified in remitting back the issue of disallowance under Section 14A to Assessing Officer by directing him to exclude own funds in the form of reserve and surplus when the assessee was maintaining mixed bag of funds ? - HELD THAT - As perused the impugned order passed by the Tribunal and more particularly paragraph 11 Tribunal, having chosen to remand the matter to the Assessing Officer for a fresh consideration, could have avoided qualifying the remand especially when the questions of law are being raised by both the Revenue as well as the assessee. We are inclined to interfere with that portion of the order passed by the Tribunal and remand the matter for a fresh consideration to the Assessing Officer to enable him/her to consider the entire matter afresh without, in any manner, curtailing exercise of his/her power as an Assessing Officer. Tribunal did not give independent reasons as to why, in its opinion, the direction issued in the case of Beach Miners Co. Pvt. Ltd. 2015 (8) TMI 1031 - ITAT CHENNAI should also apply to the case of the assessee. Tax case appeal is allowed, the findings/observations made by the Tribunal in paragraph 11 of the impugned order are set aside and the order of remand is confirmed.

Summary

Issues:
1. Interpretation of Section 14A read with Rule 8D regarding disallowance of investments made in sister concerns.
2. Validity of remitting the issue of disallowance under Section 14A to the Assessing Officer and excluding own funds in the form of reserve and surplus.

Analysis:
1. The High Court considered an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 against an order of the Income Tax Appellate Tribunal for the assessment year 2012-13. The substantial questions of law raised were whether investments in sister concerns by the assessee are liable for disallowance under Section 14A read with Rule 8D, and whether the Assessing Officer should exclude own funds in the form of reserve and surplus when determining such disallowance.

2. The Court noted that the respondent-assessee was under liquidation, represented by an Insolvency Resolution Professional (IRP). After hearing arguments from both parties, the focus was on the Tribunal's order of remand, which the Revenue accepted but raised concerns about the restrictions placed on the Assessing Officer during fresh consideration.

3. The Tribunal's order directed the Assessing Officer to consider the assessee's own funds for investment yielding exempted income and to apply Rule 8D, excluding investments in subsidiaries. The Revenue relied on the Supreme Court's decision in Maxopp Investment Ltd. case, emphasizing that only expenses proportionate to earning exempt income could be disallowed under Section 14A.

4. The Court also considered its previous decisions, such as in the case of Tamil Nadu Industrial Development Corporation Ltd., emphasizing the need for a clear and open remand without restricting the Assessing Officer's powers. The respondent-assessee cited various judgments supporting their position on the issue of disallowance under Section 14A.

5. Ultimately, the Court interfered with the Tribunal's order, setting aside the observations made in paragraph 11 and confirming the remand as an open remand. The Assessing Officer was directed to consider all issues raised by both parties and make an informed decision after hearing the IRP representing the assessee. The substantial questions of law were left open, and no costs were awarded in the matter.