2014 (6) TMI 1006 - AT - Income Tax

Tribunal upholds CIT (A) decision on Income Tax Act; directs AO to calculate disallowance.

M. Pallanji Co P. Ltd. Versus Addl CIT-Range 2 (2), Aayakar Bhavan, Mumbai

The Tribunal upheld the CIT (A)'s decision to disallow an additional sum under section 14A of the Income Tax Act and directed the AO to calculate the ... Disallowance u/s 14A - reasonable disallowance u/s 14A - Held that:- As relying on case of Godrej Boyce Mfg. Co. Ltd vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] it is held that the provisions of Rule 8D shall apply w.e.f AY 2008-2009, prior to which the AO has to enforce the provisions of section 14A(1) by adopting the “reasonable basis on method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record.” In this backdrop, find that the disallowance u/s 14A in the appellant’s case being relatable to AY 2007-08 has to be worked out on a reasonable basis. Section 145A applicability - addition on account of service tax - Held that:- As decided in M/s. Knight Frank (India) Pvt Ltd vs. Addl CIT [2013 (7) TMI 1033 - ITAT MUMBAI] the fact is that the assessee is a service provider company and patently, provisions of section 145A cannot be made applicable, because the provision was specifically introduced for the purposes of manufacture segment of business because section 145A(a)(ii) submitted before the CIT (A) mentions “.by the assessee being goods to be place of location & conditions as on the date of valuation are required to be included”. Issues:1. Disallowance under section 14A of the Income Tax Act.2. Addition made under section 145A of the Income Tax Act.Disallowance under section 14A:The appellant challenged the direction of the CIT (A) to make a reasonable disallowance under section 14A in accordance with the decision of the Bombay High Court. The appellant had suo-moto disallowed a sum of Rs. 2,11,525 under section 14A, claiming no further direct or indirect expenditure was incurred to earn exempt income. The CIT (A) upheld the AO's addition of Rs. 86,71,763 to the appellant's total income under section 145A. The appellant contended that no adjustment was warranted under section 145A and that the AO should delete the additional disallowance. The CIT (A) accepted the appellant's alternative contention regarding service tax liability but questioned the lack of evidence regarding the amount of service tax paid. The appellant argued that complete details of service tax paid were submitted to the CIT (A). The Tribunal noted the Bombay High Court's ruling that Rule 8D would apply from AY 2008-2009 and directed the AO to work out the disallowance for AY 2007-08 on a reasonable basis. The Tribunal found the CIT (A)'s direction fair and reasonable, dismissing the appellant's appeal on this ground.Addition under section 145A:The appellant contested the addition made under section 145A, citing precedents where similar issues were decided in favor of the assessee. The Tribunal observed that section 145A was introduced for the manufacturing segment and was not applicable to service providers. Relying on previous decisions, the Tribunal directed the AO to delete the addition made under section 145A. The Tribunal reversed the decision of the CIT (A) on this issue. The remaining grounds raised by the appellant were deemed either consequential or academic, leading to their dismissal. The appeal of the assessee was partly allowed by the Tribunal, with the order pronounced on June 30, 2014.