Follow Us :

Case Law Details

Case Name : DCIT Vs Amazon Textiles Pvt. Ltd. (ITAT Ahmedabad)
Appeal Number : ITA No.1473/AHD/2019
Date of Judgement/Order : 18/10/2023
Related Assessment Year : 2016-17

DCIT Vs Amazon Textiles Pvt. Ltd. (ITAT Ahmedabad)

In the case of DCIT vs. Amazon Textiles Pvt. Ltd. (ITAT Ahmedabad), the primary issue revolves around the disallowance made under section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules. The dispute involves the quantum of disallowance and whether it can exceed the amount of exempted income.

Facts of the Case:

  • The assessee, a private limited company, filed its return of income declaring income from capital gains and business/profession.
  • The assessee made a suo-moto disallowance of Rs. 13,40,46,115 under section 14A of the Act.
  • The Assessing Officer (AO), however, computed the disallowance under Rule 8D at Rs. 17,69,28,311.
  • The AO, considering the difference between the disallowance made by the assessee and the computation under Rule 8D, added Rs. 4,28,82,196 to the total income of the assessee.

Grounds of Appeal: The Revenue challenged the order of the Ld. CIT(A) on the grounds that the disallowance of Rs. 4,28,82,196 was incorrectly deleted.

Ld. CIT(A)’s Decision:

  • The Ld. CIT(A) deleted the addition made by the AO, stating that the disallowance made by the assessee exceeded the exempt income earned.
  • Citing the decision in the case of Corrtech Energy Pvt. Ltd. vs. CIT, it was emphasized that the AO cannot make a disallowance exceeding the exempt income.

Delay in Filing Cross Objection (CO):

  • The assessee filed a Cross Objection (CO) against the appeal of the Revenue, and there was a delay of 1122 days in filing the CO.
  • The assessee attributed the delay to the departure of an employee without handing over appeal papers and the impact of the COVID-19 pandemic.

Decision on Delay in Filing CO:  The ITAT decided to condone the delay in filing the CO, taking into consideration the reasons provided by the assessee, including the impact of the COVID-19 pandemic.

Merits of the Case:

  • The ITAT held that the disallowance under section 14A r.w. Rule 8D cannot exceed the amount of exempted income.
  • Citing the decision of the Hon’ble Delhi High Court in the case of Pr. CIT v. Caraf Builders & Constructions (P.) Ltd., it was emphasized that the upper disallowance cannot exceed the exempt income.

Application of Section 14A in Absence of Exempted Income: Referring to the case of CIT vs. Corrtech Energy Private Limited, the ITAT held that the provision of section 14A cannot be applied in the absence of any exempted income.

Benefit of Suo Moto Disallowance: The ITAT acknowledged that the assessee, having suo moto offered an income not chargeable to tax, is entitled to the benefit of suo moto disallowance made in the Income Tax return.

Conclusion: The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was allowed. In summary, the ITAT upheld the principle that the disallowance under section 14A should not exceed the amount of exempted income. The decision also considered the entitlement of the assessee to the benefit of suo moto disallowance made in the Income Tax return.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned appeal and CO have been filed at the instance of the Revenue and the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad, dated 11/07/2019 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as “the Act”). The assessee has filed the Cross Objection in the Revenue’s appeal bearing ITA No.1473/Ahd/2019 for the Assessment Year 2016-2017.

2.The Revenue has raised following grounds of appeal:

1. The ld.CIT(A), has erred in law and on facts in deleting the disallowance of 4,28,82,196/- made by the Assessing Officer u/s. 14Ar.w Rule 8D of the IT Rules.

2. It is, therefore, prayed that the order of Ld.CIT(A) may be set aside and that of the Assessing Officer be restored.

3. The only issue raised by the revenue is that the Ld.CIT(A) erred in deleting the disallowance made by the AO for Rs.4,28,82,196/- under the provisions of section 14A r.w. Rule 8D of Income-tax Rules.

4. Briefly stated facts are that the assessee in the present case is private limited company and has filed its return of income declaring income from the capital gain and business/profession. The assessee in the year under consideration has made the disallowance u/s14A of the Act for Rs. 13,40,46,115 only. However, as per the AO, the disallowance u/s14A of the Act, r.w. Rule 8D comes out at Rs.17,69,28,311/- only. Thus, the AO was of the view that the disallowance made by the assessee suo-moto is not correct. As such, the assessee has made less disallowance under the provision of section 14A r.w. Rule 8D of Income-tax Rules by an amount of Rs.4,28,82,196/- only(17,69,28,311-13,40,46,115). Thus, the AO made the disallowance of Rs.4,28,82,196/- and added to the total income of the assessee.

5. Aggrieved assessee preferred an appeal to the Ld.CIT(A), who deleted the addition made by the AO by observing as under:

4.5 It is seen that the appellant has earned exempt income of Rs.2,01,76,8587- and has made disallowance of Rs. 13,40,46,116/- in the return of income. However, the Assessing Officer has recomputed the disallowance as per Rule 8D. If has been held by the jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. V/s CIT-1 [2014] 223 taxman 130 (Guj) that the A.O. cannot make disallowance exceeding the exempt income. However, the appellant itrelf has computed the disallowance considering the expenditure on account of interest and further finance cost on loans made disallowance of Rs. 13,40,46,115/-. The disallowance made by the appellant on his ownexceeds the exempt income, therefore, no further disallowance as per Rule 8D is called for. In view of the above, disallowance made by the Assessing Officer is deleted.

6. Being aggrieved by the order of the ld. CIT-A, both the Revenue and assessee are in appeal and cross objection before us. The Revenue is in appeal against the deletion of the addition made by the AO for Rs. 4,28,82,196/- whereas the assessee is in cross objection contending that the disallowance u/s 14A r.w. Rule 8D of Income-tax Rules should be limited to the extent of exempted income e. Rs. 2,01,76,858/- only. The relevant objection raised in the CO by the assessee is reproduced as under:

On the facts and in the circumstances of the case, the Ld AO ought to have reduced taxable income of appellant by suo-motu disallowance under section 14Amade in return of income for Rs.11,38,69,257/- being excess of disallowance over exempt income earned and AO should be directed to access total income as per provisions of the Act.

7. At the outset, we note that there was a delay in filing the CO by the assessee by 1122 days. As per the assessee, the delay in filing the CO is attributable to two factors. Firstly, the employee, working with the assessee, has left the organization without handing over tax appeal paper to the concern person. Secondly, there was a covid pandemic which has caused delay in filing the appeal. The Hon’ble Supreme Court vide order dated 09/05/2022 in the case of SLP bearing No. 2522/2022 in the case of Babasaheb Raosaheb Kobarne & ANR Vs. Pyrotek India Private Limited has directed to exclude the period from 15-03-2020 till 31-05-2022 for the purpose of limitation.

8. The Ld.AR further submitted that the assessee has a very strong case in its favour which is covered by the Jurisdictional High Court. Thus, as per the AR, the meritorious case should not be rejected on account of technical lapses.

9. On the contrary, the Ld.DR submitted that there is inordinate delay in filing the appeal by the assessee and therefore he opposed to condone the delay in filing the appeal.

10. We have heard the rival contention of both the parties and perused the materials available on record. On merit, what appears is this that the assessee has a fair chance to succeed in the appeal filed by the Revenue and the CO filed by it. We note that the Hon’ble Gujarat High Court in the case of S.R. Koshti Vs. CIT reported in 276 ITR 165 has held as under:

20. A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in an unreported decision in case of Vinay Chandulal Satia v. N.O. Parekh, CIT [Spl. Civil Application No. 622 of 1981 dated 20-8-1981], has laid down the approach that the authorities must adopt in such matters in the following terms:

“The Supreme Court has observed in numerous decisions, including Ramlal v. Rewa Coalfields Ltd. AIR 1962 SC 361, State of West Bengal v. Administrator, Howrah Municipality AIR 1972 SC 749 and Babutmal Raichand Oswal v. Laxmibai R. Tarte AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt.”

 10.1 From the above it is revealed that the income of the assessee should not be over assessed even if there is a mistake of the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income.

 10.2 We also note that the Hon’ble Gujarat High Court in the case of Vareli textile industry versus CIT reported in 154 Taxman 33 wherein it was held as under:

It is equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits.

10.3 In view of the above and after considering the facts in totality, we are of the view that it is a fit case where the delay in filing the appeal by the assessee deserves to be condoned. Accordingly, we condone the delay and proceed to adjudicate the issue on merit.

10.4 On merit, the Ld.DR submitted that the assessee was to make the disallowance as per the provision of Rule 8D which has not been done by the assessee in its case. The ld.DR without prejudice to the above also contended that the assessee should not be given benefit of the disallowance made by it suo-moto in the income tax return by disallowing the expense of Rs.13,40,46,115/- only.

10.5 On the other hand, the Ld.AR filed a paper book running from pages 1 to 57 and case laws compilation running from pages 1 to 21 and submitted that the disallowance in any case should not exceed the exempted income as held by Hon’ble Gujarat High Court in the case of CIT vs. Corrtech Energy Private Limited reported in 45 taxmann.com 116.

11. Both the Ld.DR and the AR before us vehemently supported the order of the authorities below to the extent as favourble to them.

12. We have heard the rival contentions of both the parties and perused the materials available on record. From the order of the authorities below, it is undisputed that the exempted income earned by the assessee in the year under consideration stands at Rs. 2,01,76,858/- only whereas the assessee made the suo moto disallowance under section 14A of the Act at Rs. 13,40,46,115/- only. Thus, the question arises whether the disallowance can be made under the provisions of section 14A of the Act exceeding the exempted income. It is pertinent to note that the amount of disallowance under section 14A r.w.r. 8D cannot exceed the amount of exempted income as held by the Hon’ble Delhi High Court in case of Pr. CIT v. Caraf Builders & Constructions (P.) Ltd. [2019] 101 com167/261 Taxman 47/414 ITR 122. Further, the SLP filed by the revenue against such order was dismissed by the Hon’ble Supreme Court in Pr. CIT v. Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322/[2020] 268 Taxman 317 where the Hon’ble High court held as under:

“25. Total exempt income earned by the respondent-assessee in this year was Rs. 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from Rs. 75.89 crores to Rs. 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the earlier judgments of the Delhi High Court in Cheminvest v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi).”

12.1 The Hon’ble Jurisdictional High Court of Gujarat in the case of CIT vs. Corrtech Energy Private Limited reported in 45 taxmann.com 116 held that the provision of section 14A of the Act cannot be applied in the absence of any exempted income. The relevant observation of the Hon’ble Bench reads as under:

Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.

12.2 Respectfully following the orders of the Hon’ble High Court as mentioned above, we hold that disallowance under the provision of section 14A r.w.r. 8D of Income Tax Rules cannot exceed the exempted income in the given facts and circumstances.

12.3 Now the question arises, whether the assessee can claim the benefit of the disallowance made by the assessee in the income tax return before the judicial forum. It is the trite law that the income tax has to be levied on the income which is determined under the provisions of the Act. The assessee for any reason has offered any income which was not chargeable to tax, the revenue is not expected to deny the benefit to the assessee for which it was entitled. Thus, in our considered opinion the assessee cannot be deprived from the benefits provided under the provisions of law more particularly in a situation where the proceedings of the assessee for the year under consideration were pending before the Higher authorities on same issues. In view of the above and after considering the facts in totality, we hold that the assessee is entitled to the benefit of suo moto disallowances made by it in the Income Tax return. In view of the above detailed discussion, the ground of appeal of the revenue is hereby dismissed whereas ground of objection raised by the assessee is hereby allowed.

13. In the result appeal of the revenue is dismissed and CO of the assessee is allowed.

Order pronounced in the Court on 18/10/2023 at Ahmedabad.

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
June 2024
M T W T F S S
 12
3456789
10111213141516
17181920212223
24252627282930