Tribunal favors assessee, directs exclusion of voluntary disallowance under Section 14A for substantial justice

DCIT-14 (3) (2), Mumbai Versus M/s. Sundaram Multipap Limited And Vice-Versa

DCIT-14 (3) (2), Mumbai Versus M/s. Sundaram Multipap Limited And Vice-Versa - TMI Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Condonation of delay in filing the cross-objection.
3. Applicability of Section 14A when no exempt income is received.
4. Whether assessed income can go below the returned income due to voluntary disallowance.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The primary issue revolves around the disallowance made under Section 14A of the Income Tax Act. The Assessing Officer (AO) enhanced the disallowance to Rs. 49.94 lakhs, applying Rule 8D of the Income Tax Rules, despite the assessee's initial disallowance of Rs. 4,97,500/-. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance made out of interest expenditure, referencing the Bombay High Court decision in Reliance Utilities and Power Ltd. (313 ITR 340), as the assessee's own funds exceeded the value of investments. However, the disallowance made out of administrative expenses was sustained as per Rule 8D(2)(iii).

2. Condonation of Delay in Filing the Cross-Objection:
The assessee filed a cross-objection with a delay of 186 days. The delay was attributed to the realization, upon legal advice, that no disallowance under Section 14A was necessary since no exempt income was received. The Tribunal, referencing the case of DBS Bank Ltd. (CO No. 189/Mum/2013), condoned the delay, emphasizing that substantial justice should prevail over technical considerations, as per the Supreme Court's principles in Collector, Land Acquisition vs. MST Katiji (167 ITR 471).

3. Applicability of Section 14A When No Exempt Income is Received:
The Tribunal upheld the assessee's plea that no disallowance under Section 14A is required if no exempt income is received, supported by various High Court decisions including PCIT vs. Ballarpur Industries Limited and Cheminvest Ltd. v. CIT. The Tribunal noted that the assessee did not receive any exempt income during the year, and hence, the provisions of Section 14A were not applicable. The voluntary disallowance made by the assessee under a misconception of law was deemed not permissible.

4. Whether Assessed Income Can Go Below the Returned Income Due to Voluntary Disallowance:
The Tribunal addressed the concern that granting relief could result in the assessed income falling below the returned income. Citing the case of Tata Industries Ltd. (181 TTJ 600), the Tribunal affirmed that the AO is entitled to collect only legitimate tax, and the assessed income may go below the returned income if the disallowance was made under a misconception of law. The Tribunal emphasized that taxpayers should not be burdened with taxes they are not legally liable to pay.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection, directing the AO to exclude the voluntary disallowance made under Section 14A. The judgment emphasized the importance of substantial justice, the inapplicability of Section 14A in the absence of exempt income, and the principle that assessed income can indeed fall below the returned income if warranted by law.