Parle Biscuits Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Conclusion: Adjustment under section 143(1)(a)(iv) based on disallowance reported in Form 3CD was held to be within CPC’s jurisdiction. However, rectification under section 154 enhancing income without complying with section 154(3) was quashed. Since no satisfaction under section 14A(2) had been recorded and part of the expenditure had already been disallowed under section 37, disallowance under section 14A for both years was restricted to Rs. 1 lakh already offered by the assessee.
Held: Assessee-company was engaged in the business of manufacturing and trading of biscuits and confectionery products filed its returns of income for AYs 2021-22 and 2022-23. While processing the returns, CPC noticed differences between figures disclosed in the return and those reported in the tax audit report. Consequently, adjustments were made, including disallowance under section 14A. For AY 2021-22, CPC initially processed the return under section 143(1) and subsequently passed a rectification order under section 154 read with section 143(1), making additional disallowance under section 14A. For AY 2022-23, disallowance under section 14A was made directly in the intimation under section 143(1). Assessee contended that the amount reported in Clause 21(h) of Form 3CD comprised direct expenses already disallowed under section 37 and indirect expenses, against which it had already made a suo motu disallowance of Rs. 1 lakh under section 14A in accordance with Tribunal orders passed in its own case for earlier years. CIT(A) upheld CPC’s jurisdiction to make adjustments under section 143(1)(a)(iv) and partially sustained the disallowance after granting relief for expenditure already disallowed by the assessee. The issue arose was whether the Central Processing Centre (CPC) had the jurisdiction under section 143(1)(a)(iv) to make an adjustment based on disallowances quantified in a tax audit report but omitted by assessee in their returned income, and whether a section 14A disallowance could include expenses already disallowed under section 37(1), resulting in double disallowance. It was held that CPC had valid jurisdiction under section 143(1)(a)(iv) to propose and make adjustments if a quantified disallowance in the tax audit report was missing from the return of income, even if the assessee disputed it. The rectification order passed under section 154 for A.Y. 2021-22 was invalid because the revenue failed to properly consider assessee’s reply and provide an effective opportunity as required under section 154(3). Since assessee proved via supporting computations that the direct expenses were already disallowed under section 37, including them again under section 14A would cause an illegal double disallowance. For the remaining indirect expenditure, a reasonable disallowance of Rs. 1,00,000 meet the ends of justice. The total section 14A disallowance for both years was restricted to the Rs. 1,00,000 originally offered by the assessee.
