2022 (6) TMI 1119 - AT - Income Tax

Tribunal Rules for Assessee on Section 14A Disallowance & TDS Credit

The Tribunal ruled in favor of the assessee on multiple grounds. It emphasized the requirement for the Assessing Officer (AO) to record satisfaction ... Disallowance u/s 14A r.w.s 8D - assessee has made suo motto disallowance - HELD THAT:- AO noted only general observation and proceeded to disallow under Rule 8D of the Rules. We do not find any reference to nature of expenditure incurred by the assessee and quantum of expenditure disallowed by the assessee with regard to books of accounts that how it is it inadequate or incorrect. Merely noting general observations does not satisfy requirement of section 14A (2) - Thus, we hold that the AO has failed to record satisfaction about incorrectness of voluntarily disallowance offered by the assessee on examination of the accounts, that it is incorrect. AO does not have authority to invoke the provisions of Rule 8D of the Rules without recording satisfaction. Satisfaction of the ld AO mandated u/s 14A (2) is the entry gate for invoking computation of disallowance u/r 8D . In assessee’s own case similar issue is decided by the coordinate bench in earlier years. Therefore, in absence of any such satisfaction no disallowance under Section 14A of the Act - AO is directed to retain the disallowance offered by the assessee under Section 14A of the Act. Accordingly, ground no. 1 (a) of the appeal is allowed. Claim of TDS credit - HELD THAT:- The assessee has shown a tax deduction at source made by tax deductor which has been paid to the credit of Central Government by the various parties. However, assessee has submitted the list of 16 such parties where the amount of income has been offered by the assessee as income however, consequent TDS was not granted as credit to the assessee. The reason being that it did not appear in form no. 26AS of the assessee. If the assessee proves that such tax has been deducted by the parties but it has not been reflected in the form no. 26AS, this issue has been considered by CBDT in office memo dated 11th March 2016. In paragraph no. 3, the CBDT has directed the officers not to enforce demand arising in such circumstances. Further, merely because the tax deductor has not filed the TDS return there is enough mechanism available to catch hold of such defaulting tax deductor. No doubt, it is the duty of the assessee to show that tax has been deducted. This issue is squarely covered in favour of the assessee by the decision of the Hon'ble Gujarat High Court in case of Kartik Vijaysinh Sonavane [2021 (11) TMI 682 - GUJARAT HIGH COURT] Therefore, this issue is restored to the file of the learned Assessing Officer for limited purpose of verification and thereafter to grant credit of the same. Further a sum where the tax deduction at source could not be reconciled. This issue is also restored to the file of the learned Assessing Officer with a direction to the assessee to show that how such TDS is refundable from credit is available to the assessee. Accordingly, ground no. 2 of the appeal is partly allowed. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.2. Non-allowance of TDS credit.3. Non-adjudication of disallowance under Section 14A for book profit computation under Section 115JB.4. Erroneous dismissal of appeal due to alleged application under the Direct Tax Vivad se Vishwas Act, 2020.Detailed Analysis:Issue 1: Disallowance under Section 14A read with Rule 8DFacts and Arguments:- The assessee filed appeals for A.Ys. 2016-17 and 2017-18 challenging the disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962.- The Assessing Officer (AO) disallowed amounts under Section 14A, arguing that the assessee did not maintain separate accounts for taxable and exempt income. The AO computed the disallowance as per Rule 8D, which was upheld by the CIT(A) with further enhancements.- The assessee argued that the AO failed to record satisfaction regarding the incorrectness of the voluntary disallowance offered by the assessee, as mandated by Section 14A(2). The assessee cited precedents from the Bombay High Court and Supreme Court supporting the necessity of such satisfaction.Judgment:- The Tribunal emphasized that the AO must record satisfaction regarding the incorrectness of the disallowance offered by the assessee before invoking Rule 8D.- The Tribunal found that the AO did not record any such satisfaction and merely made general observations.- Consequently, the Tribunal held that the disallowance under Section 14A could not be made without recording the required satisfaction and directed the AO to retain the disallowance offered by the assessee.Issue 2: Non-allowance of TDS CreditFacts and Arguments:- The assessee claimed TDS credit of Rs. 2,93,74,400, which the AO restricted to Rs. 48,90,44,563, leading to a short credit.- The CIT(A) upheld the AO's decision, stating that TDS credit could only be granted in the year it appears in Form 26AS.- The assessee argued that TDS credit should be allowed in the year the related income is offered, regardless of when the TDS is deposited by the payer.Judgment:- The Tribunal directed the AO to grant TDS credit in the year the income is offered by the assessee, aligning with Section 199 of the Act.- The Tribunal also addressed the issue of TDS deducted but not deposited by the payer, directing the AO to verify and grant credit if the assessee proves the deduction.- The issue of Foreign Tax Credit was remanded back to the AO for verification and appropriate credit.Issue 3: Non-adjudication of Disallowance under Section 14A for Book Profit Computation under Section 115JBFacts and Arguments:- For A.Y. 2017-18, the assessee argued that the CIT(A) failed to adjudicate the addition made to book profit under Section 115JB due to disallowance under Section 14A.Judgment:- The Tribunal did not specifically address this issue separately but implied that the disallowance under Section 14A should be handled as per their earlier directions, which would impact the computation under Section 115JB.Issue 4: Erroneous Dismissal of Appeal Due to Alleged Application under the Direct Tax Vivad se Vishwas Act, 2020Facts and Arguments:- The assessee's appeal for A.Y. 2017-18 was dismissed by NFAC, citing that the assessee had opted for the Vivad se Vishwas Scheme.- The assessee contended that it had not filed any application under the scheme for the quantum appeal but only for a penalty appeal.Judgment:- The Tribunal acknowledged the assessee's claim and directed the NFAC to reconsider the appeal, as the dismissal was based on an incorrect assumption.Conclusion:The Tribunal's judgment addressed various issues related to disallowance under Section 14A and TDS credit, emphasizing the necessity for the AO to record satisfaction before invoking Rule 8D. The Tribunal provided directions for granting TDS credit and remanded certain issues for verification. The erroneous dismissal of the appeal due to a mistaken application under the Vivad se Vishwas Scheme was also corrected. The appeals were partly allowed, providing relief to the assessee on multiple grounds.