2023 (5) TMI 1005 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Assessee did not make any disallowance u/s 14A in computation of income - HELD THAT - Reason given by AO for the impugned disallowance that the assessee did not make any disallowance u/s 14A in computation of income completely ignoring the assessee s explanation offered before him that the expenditure claimed in profit and loss account has duly been disallowed in computation of total income and treated as pre-operative expenses capitalised as fixed assets. During the year the assessee had no business income and therefore, no expenses were claimed as business expenses or any expense under the head other sources . Hence, no disallowance of expenses is called for under section 14A r.w. Rule 8D. CIT(A) also misapplied the decision of Godrej Boyce s case 2017 (5) TMI 403 - SUPREME COURT as legal import of the decision is that the expenditure incurred in earning the exempt income cannot be allowed to be deducted which is as per law enshrined in section 14A - CIT(A) also discarded the explanation of the assessee that no expenditure was incurred to earn dividend income since the entire expenditure had been capitalised as Capital Work-in Progress without assigning any valid legal and tenable reasons. Identical disallowances made in preceding AY 2011-12 and 2012-13 have been deleted by the Ld. predecessors of the Ld. CIT(A). Rule of consistency must be adhered to if the facts and circumstances of the case remain the same. Decided in favour of the assessee. CIT(A) has already given direction for verification of opening and closing amount of investment for calculating disallowance under section 14A r.w. Rule 8D. We reiterate the same direction

Summary

Issues Involved:
The issues involved in the judgment are related to the disallowance of expenses under section 14A of the Income Tax Act, 1961 for Assessment Year 2013-14.

Summary:
The appeal filed by the assessee challenged the order of the Ld. Commissioner of Income Tax (Appeals) regarding the disallowance of Rs. 97,13,193 under section 14A of the Income Tax Act. The Assessing Officer found that the assessee had made investments and earned exempted income during the year, leading to the disallowance calculation under Rule 8D. The disallowance was confirmed by the Ld. CIT(A) subject to verification of investment figures from previous years, prompting the appeal to the Tribunal.

The assessee argued that no disallowance was warranted under section 14A as no expenses were claimed in the return, and all relevant expenses had been capitalized as fixed assets. The Tribunal noted that the assessee had not claimed any business expenses or expenses under "other sources," hence no disallowance was justified. The Tribunal also highlighted the misapplication of a Supreme Court decision by the Ld. CIT(A) and the inconsistency in previous disallowance decisions, ruling in favor of the assessee on grounds 1 and 2.

Regarding ground No. 3, the Tribunal reiterated the Ld. CIT(A)'s direction to verify the opening and closing investment amounts for calculating the disallowance under section 14A. The Ld. AO was instructed to conduct the verification after providing a reasonable opportunity for the assessee to be heard. Ultimately, the appeal of the assessee was allowed with the specified directions.

The judgment was delivered by Shri Shamim Yahya, Accountant Member, and Ms. Astha Chandra, Judicial Member of the Appellate Tribunal ITAT Delhi on 23rd May, 2023.