2023 (8) TMI 1250 - AT - Income Tax

Disallowance u/s 14A - AO recorded the dissatisfaction on the claim of the assessee of incurring no expenses for earning exempted income and accordingly invoked Rule 8D of the Income-tax Rules, 1962 (the Rules) and made disallowance - HELD THAT - Once the AO records the dissatisfaction as to the claim of the assessee made in books of accounts, there is no discretion with the AO and he has to invoke Rule 8D for determining disallowance. However if the disallowance computed under rule 8D(2)(iii) exceeds the total expenses in the nature of administrative expenses claimed in the profit and loss account, then disallowance should be restricted to that amount only as disallowance cannot be made more than the expenditure claimed against composite activities of earning exempt and taxable income. In the case of the head administrative expenses administrative expenses, the assessee has claimed amount of rupees 2139.99 lakhs which being more than the disallowance under Rule 8d(2)(iii) of ₹14,58,76,907/- and therefore we do not find any absurdity in disallowance which has been computed invoking rule 8D of rules. As before us, assessee has now admitted to have incurred some expenses toward earning of the exempted income but no such disallowance has been computed by the assessee while filing return of income. In view of the fresh claim of disallowance u/s 14A for earning exempted income, we feel it appropriate to restore the issue of disallowance u/s 14A back to the file of the AO for examining the correctness of the claim of the assessee and deciding the issue in dispute in accordance with law. Ground of appeal of the assessee is accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income-tax Act, 1961.
2. Delay in filing the appeal due to non-receipt of order.

Summary:

Issue 1: Disallowance under section 14A of the Income-tax Act, 1961
The appellant challenged the disallowance under section 14A of the Income-tax Act, 1961, related to the exempted income earned from investments. The Assessing Officer invoked Rule 8D of the Income-tax Rules, 1962 to make a disallowance of Rs. 14,58,76,907. The Commissioner of Income-tax (Appeals) upheld the disallowance citing the rule's provisions and a Third Member Bench decision. The appellant contended that there was no deliberate attempt to delay the filing of the appeal. The Tribunal found that the delay was due to negligence but not for malicious intent. The appellant's counsel argued for a restricted disallowance based on certain calculations. The Tribunal noted that once the Assessing Officer questions the claim made by the assessee, Rule 8D must be applied. However, if the disallowance exceeds the actual expenses, it should be restricted. As the appellant admitted to incurring expenses for earning exempted income, the issue was remanded back to the Assessing Officer for further examination.

Issue 2: Delay in filing the appeal due to non-receipt of order
The appellant explained the delay in filing the appeal was due to not receiving the order from the Commissioner of Income-tax (Appeals) in a timely manner. The Departmental Representative argued that the order was uploaded on the e-filing account, a valid mode of service under the Income-tax Rules. The Tribunal acknowledged the negligence in not noticing the order promptly but condoned the delay as unintentional, ensuring substantial justice.

In conclusion, the appeal was allowed for statistical purposes, and the issue of disallowance under section 14A of the Act was remanded back to the Assessing Officer for further examination in accordance with the law.