2024 (11) TMI 1392 - HC - Income Tax

Section 14A disallowance of Rs.2,77,80,538 upheld as rectification under Section 154, not assessment enhancement

The Telangana HC upheld the disallowance under Section 14A limited to Rs.2,77,80,538, ruling it was not an assessment enhancement. The court held that the ... Disallowance u/s.14A - rectification u/s 154 - HELD THAT:- Disallowance u/s 14A of the Act is limited to Rs.2,77,80,538/- and the same cannot be treated as an enhancement of assessment and further held that neither assessee nor AO have mentioned particular figure without linking the same to the allowance of the interest paid and when the allowances of interest has not reached finality, it cannot be said that quantum of disallowance u/s 14A has finally be arrived at and also held that the first appellate authority has omitted to consider the aspect of amount disallowable u/s 14A of the Act and the said mistake was rectified by the Commissioner in the appeal while exercising the power conferred u/s 154 and the same is permissible. In South Indian Bank Limited [2021 (9) TMI 566 - SUPREME COURT] by relying the judgment of Maxopp Investment Ltd [2018 (3) TMI 805 - SUPREME COURT] held that the purpose behind Section 14A by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such as income. In T.S.Balaram [1971 (8) TMI 3 - SUPREME COURT] and MEPCO Industries Limited [2009 (11) TMI 24 - SUPREME COURT] the Hon’ble Supreme Court held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not “mistake apparent from the record”. The above said judgments are not applicable to the facts and circumstances of the case on the ground that the assessee had filed three calculations of the interest to be allowed u/s 14A of the Act before the AO to determine the total income and allowance of interest paid to the M/s.Tamil Nadu Newsprint and Papers Limited. Hence, the contention of the learned counsel for the appellant that the provisions of Section 14A of the Act is not applicable to the assessee is not tenable under law, especially the appellate authority passed order dated 29.12.2003 rectifying the disallowance amount u/s 14A basing upon the calculations made by the assessee and the same cannot be treated as enhancement of assessment. It is pertinent to mention here that the assessee itself had accepted the disallowance under Section 14A of the Act and therefore it was not debatable issue. The appellate authority after following the due procedure as contemplated under the law including the issuance of notice and after considering the objections of the parties rectified the error and made disallowance and the same is within the purview of the provisions of the Act. Hence, substantial questions of law are answered against the assessee. Issues:1. Whether the Income Tax Appellate Tribunal correctly held that there was no debatable issue regarding the amount of interest disallowable under Section 14A of the Income Tax Act, 1961Rs.2. Whether the first appellate authority was justified in passing a Rectification Order under Section 154 of the Act when the matter was highly debatableRs.Analysis:1. The appeal under Section 260A of the Income Tax Act, 1961 was filed by the assessee concerning the assessment year 1999-2000. The primary issue revolved around the disallowance of interest under Section 14A of the Act. The Assessing Officer had disallowed an amount without considering the payment made to a specific entity. The Commissioner of Income Tax (Appeals) partly allowed the appeal, but later issued a Rectification Order under Section 154 to enhance the disallowance. The Tribunal dismissed the appeal, leading to the current proceedings.2. The main contention by the assessee was that the issue of disallowance under Section 14A was highly debatable and should not have been subject to rectification under Section 154. The assessee argued that the matter had concluded with the CIT (A)'s order dated 06.11.2002. The assessee relied on various legal precedents to support the argument that the alleged mistake was not apparent from the record and that the enhancement made by the CIT (A) was not justifiable.3. On the contrary, the Revenue contended that the assessee had accepted the disallowance under Section 14A, making it a non-debatable issue. The Revenue argued that the orders passed by the authorities were reasoned and valid, with no substantial questions of law arising. The Revenue highlighted the purpose of Section 14A to prevent double benefits to the assessee.4. The High Court analyzed the statutory provisions and the facts of the case. It noted that the appellate Tribunal had correctly held that the first appellate authority rightly rectified the disallowance amount under Section 14A based on the calculations provided by the assessee. The Court referenced legal judgments to establish that a mistake apparent from the record must be obvious and patent, which was the case here due to the varying calculations provided by the assessee.5. The Court ultimately concluded that the assessee had accepted the disallowance under Section 14A, making it a non-debatable issue. The Rectification Order by the CIT (A) was deemed permissible as it rectified an apparent mistake based on the calculations provided. The Court dismissed the Income Tax Tribunal Appeal, ruling against the assessee and upholding the orders passed by the authorities.6. In summary, the judgment delved into the debatable nature of the issue regarding the disallowance under Section 14A, the validity of the Rectification Order under Section 154, and the application of legal precedents to support the arguments presented by both parties. The Court's detailed analysis led to the dismissal of the appeal filed by the assessee.