2014 (6) TMI 979 - AT - Income Tax

Appeal on Commission Disallowance Dismissed, Section 14A Disallowance Re-examined

Assistant Commissioner of Income Tax, Circle-12 (1), New Delhi Versus Hero Honda Finlease Limited

The Revenue's appeal against the deletion of commission disallowance was dismissed by the ITAT, upholding the CIT(A)'s decision based on previous ... Disallowance of Commission paid to Managing Director of assessee company - Held that:- We find this issue to be covered in favour of the assessee by the decision of ITAT in assessee’s own case for AY 2005-06 [2012 (5) TMI 217 - ITAT DELHI] wherein the ITAT decided this issue in favour of the assessee. Since the issue is settled by the decision of ITAT in assessee’s own case in earlier years, we do not find any infirmity in the order of learned CIT(A) in deleting the disallowance Disallowance u/s 14A applying the provisions of Rule 8D - Held that:- We find this issue also to be covered in favour of the assessee by the decision of ITAT in assessee’s own case for AY 2007-08 wherein the ITAT set aside the matter to the file of the Assessing Officer wherein held in case, the AO is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the AO is to accept the claim of the assessee insofar as the quantum of disallowance under s. 14A is concerned. In such eventuality, the AO cannot embark upon a determination of the amount of expenditure for the purposes of s. 14A(1). In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment Issues involved:1. Revenue's appeal against the deletion of commission disallowance.2. Assessee's appeal against disallowance under Section 14A.Analysis:1. Revenue's Appeal:The Revenue appealed against the deletion of a commission disallowance of Rs. 47,00,000 paid to the Managing Director of the assessee company. The ITAT found that this issue was previously decided in favor of the assessee by the ITAT in the assessee's own case for AY 2005-06 and AY 2007-08. The ITAT upheld the order of the CIT(A) as it followed the previous decisions of the ITAT in favor of the assessee. Therefore, the Revenue's appeal was dismissed.2. Assessee's Appeal:The assessee appealed against the disallowance under Section 14A made by the Assessing Officer using Rule 8D. The ITAT observed that this issue was also resolved in favor of the assessee by the ITAT in the assessee's own case for AY 2007-08. The ITAT referred to the guidelines provided by the Jurisdictional High Court regarding the determination of expenditure under Section 14A for the period prior to the introduction of Rule 8D. The ITAT set aside the orders of the lower authorities and directed the Assessing Officer to re-examine the disallowance under Section 14A in accordance with the guidelines provided by the High Court. The Assessing Officer was instructed to provide the assessee with a fair opportunity to present their case. Consequently, the appeal of the Revenue was dismissed, and the appeal of the assessee was considered allowed for statistical purposes.In conclusion, the ITAT upheld the CIT(A)'s decision in the Revenue's appeal based on previous favorable decisions for the assessee. For the assessee's appeal, the ITAT directed a re-examination of the disallowance under Section 14A by the Assessing Officer in line with the High Court guidelines, ensuring a fair opportunity for the assessee to present their case.