2015 (2) TMI 991 - HC - Income Tax

Court Confirms Tax-Free Dividend Addition, Remands for Fresh Consideration

GEBR Pfeiffer (India) Private Ltd. Versus Commissioner of Income Tax

The court confirmed the addition under Section 14A of Rs. 13,82,741 for tax-free dividend income. Emphasizing the Assessing Officer's satisfaction, the ... Disallowance u/s 14A - assessee/appellant had declared tax free dividend income to the tune of ₹ 2,71,83,864/- - Held that:- The statutory disallowance mandated by Section 14A - the procedure to which - has been subsequently spelt out in Rule 8D, has been interpreted in Maxopp [2011 (11) TMI 267 - Delhi High Court] and Taikisha (2014 (12) TMI 482 - DELHI HIGH COURT) in a particular manner, i.e., that the AO would first needs to be satisfied as to the assessees explanation, or its absence [see Section 14A (3)] before coming to the conclusion that some expenditure was in fact incurred or deemed to have been incurred. Though the grounds of appeal in the CIT (A) proceedings do not expressly spell out this aspect, it cannot be denied that this matter was agitated before the CIT (A) for hearing as well as before the ITAT. At the same time, this Court notices that in both Maxopp and Taikisha, and the ultimate order made by both the Division Benches was to remit the matter for fresh consideration by the AO. Perhaps this was necessitated by the fact that the interpretation of Section 14A - guided by Rule 8D was in the light of the decision in Godrej and Boyce Mfg. Co. Ltd. vs. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] and the fact that the Rule 8D was brought in later, i.e., w.e.f. AY 2008-09 - Thus matter is remitted to the Assessing Officer for consideration whether, in fact, there was any necessity for invoking the Section 14A (3) read with relevant part of Rule 8D - Decided in favour of assessee for statistical purposes. Issues:1. Addition under Section 14A2. Interpretation of Section 14A and Rule 8D3. Jurisdiction of Assessing OfficerIssue 1: Addition under Section 14AThe assessee was aggrieved by the addition of Rs. 13,82,741 under Section 14A due to tax-free dividend income declared. The ITAT confirmed the CIT (A) order, rejecting the assessee's contentions. The appellant relied on previous court decisions, emphasizing that the Assessing Officer must be unsatisfied with the claim before determining the expenditure related to exempt income, as per Rule 8D. The appellant argued that without the Assessing Officer's satisfaction, no jurisdiction could be claimed for the disallowance.Issue 2: Interpretation of Section 14A and Rule 8DThe appellant contended that the rulings in Maxopp and Taikisha reiterated the requirement for the Assessing Officer's satisfaction regarding the correctness of the assessee's claim before determining the expenditure related to non-taxable income. The court emphasized the importance of the Assessing Officer being satisfied with the explanation or its absence before concluding on the expenditure incurred. The matter was remitted for fresh consideration by the AO, guided by the decisions in Maxopp and Taikisha, considering the interpretation of Section 14A and Rule 8D in light of previous judgments.Issue 3: Jurisdiction of Assessing OfficerThe Revenue's counsel argued that the ITAT's order was justified, pointing out that the assessee did not specifically challenge the lack of satisfaction recorded by the AO. However, the CIT (A) had addressed this aspect in its order. The court noted that the matter regarding the Assessing Officer's satisfaction was raised during the appellate proceedings. The court remitted the matter to the Assessing Officer for reconsideration to determine if invoking Section 14A (3) and Rule 8D was necessary, ensuring all rights and contentions of the parties remained open and the AO was bound by the decisions in Maxopp and Taikisha.