2024 (3) TMI 432 - HC - Income Tax

ITAT order set aside for ignoring precedent decisions on Section 14A administrative expenditure disallowance under Rule 8D formula

The Gujarat HC set aside the ITAT order regarding disallowance under Section 14A for administrative expenditure in computing average total assets per Rule ... Disallowance u/s 14A - disallowance of administrative expenditure to arrive at average total asset for computing disallowance as per formula prescribed by Rule 8D on the opening and closing of gross block of fixed assets - Validity of order of ITAT remanding the matter to the AO for proper verification and adjudication - HELD THAT:- As it is not in dispute nor it is controverted by learned senior standing counsel for the respondent that For the Assessment Years 2009-10 and 2010-11 the coordinate Bench of the Tribunal has allowed the interest expenditure on the assessee and also restricted the disallowance on administrative expenses upto Rs. 10.00 lakhs and Rs. 15.00 lakhs for the respective Assessment Year for making disallowance u/s 14A of the Act and such orders passed by the coordinate Bench of the Tribunal are confirmed by this Court while dismissing the Tax Appeals of the Revenue being. [2018 (8) TMI 922 - GUJARAT HIGH COURT]. Admittedly, the Tribunal has not considered such decisions and only referred to and relied upon the submissions made by the authorised representative of the assessee to decide the issue for disallowance under Section 14A of the Act. The impugned order of the Tribunal is required to be set aside and matter is required to be remanded to the Tribunal to decide such grounds afresh de novo. Issues Involved:1. Remanding of the matter back to the Assessing Officer regarding disallowance under Section 14A of the Income Tax Act, 1961.2. Tribunal's failure to follow previous judgments of the High Court and coordinate bench of the Tribunal.3. Dismissal of Miscellaneous Applications by the Tribunal.Summary:Issue 1: Remanding of the Matter Back to the Assessing OfficerThe Tribunal remanded the matter back to the Assessing Officer for proper verification and adjudication regarding the disallowance of administrative expenses under Section 14A of the Income Tax Act, 1961. The Tribunal directed the Assessing Officer to consider the assessee's submission that current liabilities and provisions should not be reduced from the opening and closing stock of current assets. The Tribunal emphasized the need for the Assessing Officer to verify whether the borrowings were used for business purposes and if the investments were made from the assessee's own funds.Issue 2: Tribunal's Failure to Follow Previous JudgmentsThe assessee argued that the Tribunal did not consider the orders from previous assessment years (2009-10 and 2010-11) where similar disallowances under Section 14A were made and confirmed by the High Court. The Tribunal was criticized for not following the precedent set by the coordinate bench in the assessee's own case, which had allowed a lump sum disallowance for administrative expenses and confirmed the deletion of interest expenses.Issue 3: Dismissal of Miscellaneous ApplicationsThe Tribunal dismissed the Miscellaneous Applications filed by the assessee, which sought rectification of the Tribunal's order. The Tribunal held that there was no mistake apparent on the record and that each assessment year should be considered independently. The Tribunal maintained that the Assessing Officer should confirm the disallowance of administrative expenses under Section 14A based on proper verification.Conclusion:The High Court found that the Tribunal had not considered previous decisions and had only relied on the submissions made by the assessee's authorized representative. Therefore, the High Court set aside the Tribunal's order regarding Ground No. 1 of the Department's appeal, Ground No. 2 of the assessee's appeal, and Ground No. 2 of the Cross Objections. The matter was remanded back to the Tribunal for a de novo hearing on the merits, ensuring that both parties are given an opportunity to be heard.