2016 (3) TMI 1098 - HC - Income Tax

High Court overturns Tribunal decision due to natural justice breach, remands for fresh disposal

The High Court of Bombay allowed the appeal filed by the Revenue under Section 260A of the Income Tax Act, challenging the Income Tax Appellate Tribunal's ... Disallowance u/s 14A - it is the appellant's contention that before rejecting the disallowance of expenditure made by it, the Assessing Officer has not recorded his non satisfaction of the disallowance of expenditure done by the appellant as relying on J.K. Investors (Bombay) Ltd. V/s ACIT [2013 (5) TMI 580 - ITAT MUMBAI ] - Held that:- In view of the fact that the impugned order of the Tribunal does not deal with its decision in J. K. Investors (supra) relied upon by the appellantassessee in support of its submission as recorded in the impugned order itself makes the impugned order a nonspeaking order and, therefore, in breach of principles of natural justice. In the above view, the substantial question of law is answered in the affirmative i.e. in favour of the appellant assessee and against the revenue. However, the issue of applicability of Rule 8D of the Rules or otherwise has yet to be determined by the Tribunal. In these circumstances, we set aside the impugned order passed by the Tribunal and restore the entire appeal to the Tribunal for fresh disposal in accordance with law. Issues Involved:Appeal under Section 260A of the Income Tax Act - Exception to the order of the Income Tax Appellate Tribunal dated July 10, 2013 - Substantial question of law regarding the Tribunal's decision on referring to its coordinate Bench decision - Disallowance of expenditure incurred to earn exempt income under Section 14A of the Act - Non-speaking order by the Tribunal - Breach of principles of natural justice - Applicability of Rule 8D of the Income Tax Rules.Analysis:The High Court of Bombay heard an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal dated July 10, 2013, pertaining to the Assessment Year 2008-09. The substantial question of law admitted for consideration was whether the Tribunal was justified in not addressing the appellant's reliance on a coordinate Bench decision in its order. The appellant, a non-banking finance company, had earned dividend income during the assessment year, which was claimed as exempt under Section 10(34) of the Act. The appellant disallowed a portion of the expenditure incurred to earn exempt income under Section 14A of the Act, based on the proportion of taxable income to exempt income. The appellant contended that the Assessing Officer did not record non-satisfaction with the disallowance before rejecting it, as required by Section 14A(2) of the Act.The appellant relied on a decision of a coordinate Bench of the Tribunal in support of its contention, which the impugned order acknowledged but failed to address. The High Court held that the Tribunal's failure to consider its own decision cited by the appellant made the impugned order a nonspeaking order, breaching principles of natural justice. The Court ruled in favor of the appellant, setting aside the Tribunal's order and remanding the appeal for fresh disposal. The issue of the applicability of Rule 8D of the Income Tax Rules was left open for determination by the Tribunal. The appeal was disposed of in accordance with the law, with no order as to costs.This comprehensive analysis of the judgment highlights the key legal issues involved, the arguments presented by the parties, and the Court's reasoning leading to its decision to set aside the Tribunal's order and remand the case for fresh disposal.