2014 (4) TMI 713 - HC - Income Tax

High Court upholds dismissal of Revenue's appeal for lack of recorded dissatisfaction with claim under Income Tax Act

The High Court dismissed the Revenue's appeal as the Assessing Officer did not record dissatisfaction with the correctness of the claim made by the ... Admission of appeal - Disallowance of expenses u/s 14A of the Act – Correctness of the claim – Held that:- Assessee contended that the AO did not record his dissatisfaction with the correctness of the claim made by the assesssee – thus, the appeal cannot be admitted as no substantial question of law arises for consideration – Decided against Revenue. Issues:1. Disallowance of expenditure under Section 14A of the Income Tax Act without recording dissatisfaction with the correctness of the claim.2. Reduction of disallowance amount by CIT appeal.3. Appeal by Revenue against CIT appeal order.4. Interpretation of a judgment regarding the source of acquisition of shares and disallowance of proportionate amount.Issue 1: Disallowance of expenditure under Section 14A without recording dissatisfaction:The Assessing Officer disallowed expenditure under Section 14A of the Income Tax Act without first recording dissatisfaction with the correctness of the claim of the assessee. The CIT appeal reduced the disallowance amount, but the Revenue was aggrieved and approached the Appellate Tribunal. The Tribunal dismissed the appeal. The Revenue then appealed to the High Court. The Court noted a judgment where it was held that the assessee must show the source of acquisition of shares exempt from tax. The Court found that the Assessing Officer did not record dissatisfaction with the claim made by the assessee, leading to the dismissal of the appeal.Issue 2: Reduction of disallowance amount by CIT appeal:The CIT appeal reduced the disallowance amount from Rs. 4,03,86,996/- to Rs. 26,09,386/-. However, the Revenue was dissatisfied with this reduction and pursued the matter further through the Appellate Tribunal and eventually to the High Court. The High Court considered the arguments presented by both sides but ultimately dismissed the appeal due to the lack of recorded dissatisfaction by the Assessing Officer with the correctness of the claim made by the assessee.Issue 3: Appeal by Revenue against CIT appeal order:The Revenue appealed against the order of the CIT appeal, which had reduced the disallowance amount. The Appellate Tribunal had earlier dismissed the Revenue's appeal. The High Court, in its judgment, considered the arguments presented by both sides and referred to a relevant judgment regarding the source of acquisition of shares. However, the High Court ultimately dismissed the appeal due to the absence of recorded dissatisfaction by the Assessing Officer with the claim made by the assessee.Issue 4: Interpretation of a judgment regarding the source of acquisition of shares and disallowance of proportionate amount:The High Court referred to a judgment that emphasized the importance of the assessee showing the source of acquisition of shares exempt from tax. The judgment highlighted that the onus is on the assessee to prove the source of acquisition of shares, especially if acquired through a loan. The Court noted that in the present case, the Assessing Officer did not record dissatisfaction with the claim made by the assessee, leading to the dismissal of the appeal by the Revenue. The High Court concluded that the appeal did not raise any substantial question of law and therefore dismissed it.