2022 (7) TMI 1257 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance made by assessee - HELD THAT - The solitary issue involved in this appeal of the assessee is squarely covered by the decision of Coordinate Bench of this Tribunal rendered in the case of DCIT Vs. Greenland Infracon 2018 (11) TMI 1415 - ITAT AHMEDABAD mere admission on the part of the assessee with respect to an addition/disallowance in its original return or in revised return would not ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. It is thus well settled that if a particular income is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. The Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is thus open to assessee to show that it was over assessed in correctly owing to its own mistake. So viewed, we do not see any potency in the argument laid on behalf of the Revenue that the CIT(A) allegedly committed error in granting total relief in the matter of disallowance under s.14A of the Act. In our considered view, the action of the CIT(A) in granting relief under s.14A of the Act on account suo moto disallowance by the assessee and thereby granting relief higher than claimed in the return of income cannot be faulted in law. - Decided in favour of assesse.

Summary

Issues:
Disallowance under Section 14A of the Income-tax Act - Applicability when no exempt income earned - Relief claimed by assessee - Disallowance made by Assessing Officer - Appeal before CIT(A) - Decision to sustain disallowance - Appeal before Tribunal.

Analysis:
The appeal before the Appellate Tribunal ITAT Ahmedabad involved a challenge by the assessee against the order of the Commissioner of Income-tax (Appeals) regarding disallowance under Section 14A of the Income-tax Act. The assessee, a company, had filed its return of income declaring a loss and offered a disallowance under Section 14A read with Rule 8D. The Assessing Officer re-computed the disallowance despite the assessee not earning any exempt income during the year. The CIT(A) sustained the disallowance made by the Assessing Officer, citing the disallowance already offered by the assessee in the return of income. The Tribunal noted that the issue was similar to a previous case and followed the decision of the Coordinate Bench in granting relief to the assessee. The disallowance made by the Assessing Officer was deleted by the Tribunal, and the appeal of the assessee was allowed.

The key contention revolved around the applicability of Section 14A when no exempt income was earned by the assessee during the relevant year. The assessee argued that the invocation of Section 14A was not warranted due to the absence of exempt income. The CIT(A) acknowledged that various judicial pronouncements supported the assessee's position, including a decision of the Hon'ble Gujarat High Court. However, the CIT(A) sustained the disallowance made by the Assessing Officer, emphasizing that the returned income could not be reduced by the disallowance already offered by the assessee. The Tribunal, considering the precedent set by a previous case, ruled in favor of the assessee and deleted the disallowance.

The Tribunal's decision was influenced by a previous judgment regarding the treatment of disallowances made by the assessee beyond the return of income. The Tribunal highlighted that the Revenue authorities are obligated to assess the correct income, even if an assessee mistakenly offers income for tax. The Tribunal emphasized that if a particular income is not taxable under the Act, it cannot be taxed based on estoppel or any equitable doctrine. Therefore, the Tribunal found no fault in the CIT(A) granting relief under Section 14A based on the assessee's suo moto disallowance, even if it exceeded the claimed amount in the return of income. The Tribunal's decision was aligned with the principles established in various judicial decisions, emphasizing the importance of assessing legitimate tax dues and rectifying over assessments caused by assessee's mistakes.

In conclusion, the Tribunal allowed the appeal of the assessee, deleting the disallowance made by the Assessing Officer and sustained by the CIT(A). The decision was based on the similarity of the issue to a previous case and the principles outlined in the precedent judgment, emphasizing the importance of assessing correct income and granting relief based on legitimate tax liabilities.