2022 (3) TMI 150 - AT - Income Tax

ITAT Upholds Commissioner's Decision on Section 14A Disallowance

The ITAT upheld the Commissioner's decision on the disallowance under section 14A of the Income Tax Act and the specific expenditure amount, dismissing ... Disallowance u/s 14A - HELD THAT:- In the present case, the assessee has made disallowance u/s 14A r.r.8D even though the assessee has not received any exempt income. We are of the view that it is also settled principle that the assessee is required to pay tax on true and correct income. The main contention of the Ld.Counsel for the assessee is that due to oversight the assessee made disallowance. The disallowance itself is contrary to law in the absence of exempt income. We found force in the argument of the assessee that in the absence of exempt income, the provisions of 14A r.w.r 8D is not applicable. It is settled issue that if the assessee has not received dividend income, section 14A r.w.r.8D of the Act cannot be made applicable in the absence of exempt income. Therefore, we do not find any infirmity in the order passed by the Ld.CIT(A). Disallowance of expenditure which is preliminary and capital in nature - as per CIT-A AO is not justified in disallowing the expenditure - HELD THAT:- As assessee has submitted that majority of the expenses are for pre-bid studies of road projects and investment maintenance charges was already disallowed by the assessee in its computation of income. CIT(A) considered all these aspects and rightly allowed the ground raised by the assessee. We are of the view that the Ld.CIT(A) rightly considered the nature of expenditure, therefore needs no interference. Accordingly, the ground raised by the revenue is dismissed. Issues:1. Disallowance under section 14A of the Income Tax Act, 1961 without filing a revised return of income.2. Entertaining additional claim of allowance in appellate proceedings.3. Correctness of granting an allowance not disallowed by the Assessing Officer.4. Correctness of granting an allowance not claimed in the Return of Income.5. Disallowance of expenditure amounting to a specific sum.Analysis:1. The appeals were filed by the revenue against the orders of the Commissioner of Income Tax (Appeals) for the Assessment Years 2011-12 and 2012-13, challenging the disallowance under section 14A of the Income Tax Act. The main issue was whether the Commissioner was correct in restricting the disallowance to a specific amount without a revised return of income filed by the assessee.2. The assessee raised an additional ground before the Commissioner, seeking to restrict the disallowance under section 14A to a certain amount. The revenue contended that the Commissioner erred in allowing this additional ground without a revised return of income. The assessee argued that the disallowance was not warranted as there was no exempt income, citing relevant case laws to support their claim.3. The revenue raised multiple grounds in their appeal before the ITAT, questioning the correctness of the Commissioner's decision to allow the additional claim of allowance and grant an allowance not disallowed by the Assessing Officer. The ITAT examined whether the appellate authority had the legal basis to entertain such claims during the appellate proceedings.4. The ITAT considered the submissions of both parties and the relevant case laws. It was observed that the assessee had made a disallowance under section 14A even though there was no exempt income, rendering the disallowance contrary to law. The ITAT upheld the Commissioner's decision to restrict the disallowance to a specific amount based on the absence of exempt income, in line with established legal principles.5. Additionally, the ITAT addressed the issue of disallowance of a specific expenditure amount, determining that the nature of the expenses was in the course of carrying on the business. The ITAT agreed with the Commissioner's assessment of the expenditure and dismissed the revenue's appeal on this ground.6. The ITAT also noted the cross objections filed by the assessee, which were supportive in nature. Since the appeals filed by the revenue were dismissed, the cross objections were deemed infructuous and subsequently dismissed.In conclusion, the ITAT upheld the Commissioner's decision on the disallowance under section 14A and the expenditure amount, dismissing the appeals filed by the revenue and the cross objections filed by the assessee.