2021 (1) TMI 231 - AT - Income Tax

Disallowance u/s 14A - CIT(A) has deleted the addition by giving a finding that there is no exempt income earn - CIT(A) has held that since assessee has himself made a disallowance for earning the exempt income u/s.14A he is going to sustain the aforesaid disallowance and hence he has made a enhancement of the said amount. HELD THAT - We find that there is no estoppel as to law. If an addition or disallowance is not permissible in law the same cannot be fastened upon the assessee on his concession. Moreover, the ld. CIT(A) is relying upon the jurisdictional High Court decision in M/S. DELITE ENTERPRISES 2009 (2) TMI 498 - BOMBAY HIGH COURT deleting the addition made by the assessing officer then again making an enhancement on a different pretext of estoppel or offering concession by the assessee. This is on the cusp of contempt of the Hon ble Jurisdictional High Court, and not at all sustainable. Accordingly, we set aside the orders of ld. CIT(A) and delete the addition.

Summary

Issues Involved:
1. Disallowance of expenses under section 37(1) of the Act.
2. Disallowance under section 14A of the Act.
3. Enhancement of disallowance by the Commissioner of Income Tax (Appeals).

Issue 1: Disallowance of expenses under section 37(1) of the Act:
The appellant contested the disallowance of expenses amounting to ?51,35,105 under section 37(1) of the Act. The appellant argued that the expenses were incurred for their Cable Network Services and Internet Service Provider businesses, not for earning income from investments. The appellant also claimed that the disallowance was enhanced without affording proper opportunity, violating principles of natural justice. The Assessing Officer had disallowed the expenses as expenditure related to exempt income under Section 14A read with Rule 8D(2), which the appellant challenged.

Issue 2: Disallowance under section 14A of the Act:
During the assessment proceedings, the Assessing Officer found that the appellant held investments income that did not form part of the total income. The AO disallowed a sum under Rule 8D(2) as expenditure related to exempt income. However, the Commissioner of Income Tax (Appeals) deleted the addition, citing that no exempt income was earned during the relevant year. The CIT(A) relied on a decision of the Hon'ble Bombay High Court and held that Section 14A read with Rule 8D was not applicable in the appellant's case.

Issue 3: Enhancement of disallowance by the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) proposed an enhancement of the disallowance based on the appellant's admission of incurring expenses for earning tax-free dividend income. The appellant did not respond to the proposed enhancement during the proceedings, leading the CIT(A) to add the amount to the appellant's total income under section 37(1) of the Act. The ITAT Mumbai set aside the CIT(A) orders, stating that if an addition or disallowance is not permissible in law, it cannot be imposed on the assessee based on their concession. The ITAT Mumbai deleted the enhancement and allowed the appeal filed by the assessee.

This summary provides a detailed analysis of the legal judgment, covering all the issues involved and the respective decisions made by the authorities.