2021 (3) TMI 1455 - AT - Income Tax

Tribunal Orders Deletion of Voluntary Disallowance, No Sec. 14A Disallowance Without Exempt Income.

The Tribunal allowed the appeal, directing the AO to delete the voluntary disallowance of Rs. 33,62,493/- made by the assessee under Rule 8D(2)(iii). The ... Disallowance u/s. 14A of the Act r.w. Rule 8D(2)(iii) - assessee made voluntary disallowance of administrative expenses under third limb of Rule 8D(2) of the Rules - as there was no exempt income derived by the assessee, he pleaded that suo-moto addition should be reduced while determining taxable income as there was no exempt income derived by the assessee - HELD THAT:- We find that assessee is entitled to make a claim before the ld. AO or before the ld. CIT(A) even though it had made certain erroneous disallowance in the return of income. Reliance in this regard is placed on the decision of Pruthvi Brokers and Shareholders Pvt Ltd [2012 (7) TMI 158 - BOMBAY HIGH COURT] Respectfully following the said decision, we hold that the lower authorities ought to have entertained the claim of the assessee. We also find that the ld. CIT(A) had categorically agreed to the legal proposition that no disallowance u/s. 14A of the Act could be made when there is no exempt income. Having said so, he ought to have entertained the plea of the assessee and directed the ld. AO to reduce even the suo moto disallowancemade by the assessee. To this extent, we are inclined to modify the order of the ld. CIT(A) and direct the ld. AO to delete suo moto disallowance made by the assessee. Assessed income going below returned income - We are conscious of the fact that this deletion of suo moto disallowance would result in assessed income going below the returned income. In this regard, we find that in the case of Gujarat Gas Company Ltd [2000 (4) TMI 19 - GUJARAT HIGH COURT] and also Milton Laminates Ltd [2013 (3) TMI 192 - GUJARAT HIGH COURT] had categorically held that the assessed income could go below the returned income if assessee had disclosed certain income which is not supposed to be disclosed as per law. Thus we direct the ld. AO to delete the voluntary disallowance made by the assessee u/s. 14A of the Act even if ultimately the assessed income goes below the returned income. Appeal of the assessee is allowed. Issues involved: The only issue involved in this appeal is whether the disallowance made u/s 14A of the Income Tax Act, 1961, r.w. Rule 8D(2)(iii) of the Rules amounting to Rs. 33,62,493/- was justified in the given circumstances.Details of the Judgment:Issue 1: Disallowance u/s 14A of the ActThe assessee, a public limited company, had voluntarily disallowed administrative expenses under Rule 8D(2) of the Rules amounting to Rs. 33,62,493/- in the return of income. The Assessing Officer (AO) computed the disallowance under Rule 8D(2) of the Rules, resulting in a net disallowance of Rs. 5,48,61,727/-. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted the disallowance u/s 14A of the Act as there was no exempt income derived by the assessee. However, the CIT(A) sustained the voluntary disallowance made by the assessee. The Tribunal held that the lower authorities should have entertained the claim of the assessee to reduce the voluntary disallowance, as per the legal proposition that no disallowance u/s 14A of the Act could be made when there is no exempt income. Consequently, the Tribunal directed the AO to delete the voluntary disallowance of Rs. 33,62,493/- made by the assessee.Issue 2: Assessed income going below returned incomeAcknowledging that the deletion of the voluntary disallowance would result in the assessed income going below the returned income, the Tribunal referred to precedents where it was held that assessed income could go below the returned income if the assessee had disclosed certain income not required to be disclosed by law. Following this legal principle, the Tribunal directed the AO to delete the voluntary disallowance made by the assessee, even if it led to the assessed income being lower than the returned income.Conclusion:In conclusion, the Tribunal allowed the appeal of the assessee, directing the AO to delete the voluntary disallowance made by the assessee under Rule 8D(2)(iii) of Rs. 33,62,493/-.