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Facts
The assessee, engaged in designing and technical consultancy services, filed its ITR declaring income and had investments in group concerns. The AO made a disallowance under Section 14A of the Act, which was partly allowed by the CIT(A).
Held
The Tribunal found that the AO had not provided reasons for rejecting the assessee's suo-moto disallowance and was not justified in enhancing the disallowance. Following precedents, the disallowance under Section 14A was deleted.
Key Issues
Whether the Assessing Officer was justified in making a disallowance under Section 14A of the Act without providing proper reasoning, and whether Rule 8D of the Income Tax Rules is mandatory.
Sections Cited
14A, 115JB, Rule 8D
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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI AVDHESH KUMAR MISHRA
This appeal of the assessee for the Assessment Year (AY) 2017-18 is directed against the order dated 28.06.2024 of the Commissioner of Income Tax (Appeals), NFAC, New Delhi [hereinafter, the ‘CIT(A)’].
The assessee, vide ground nos. 1 to 3, has challenged the impugned order sustain the disallowance of Rs.4,35,00,000/- under Section 14A of the
The relevant facts giving rise to this appeal are that the appellant assessee, engaged in the business of designing and technical consultancy services to various infrastructural projects, filed its Income Tax Act (ITR) of the relevant year on 26.10.2017 declaring income of Rs.7,43,45,940/- under normal provision and income of Rs.8,61,39,649/- under section 115JB of the Act. The case was picked up for scrutiny and consequential assessment was completed at income of Rs.14,85,83,440/- under normal provisions and at income of Rs.16,03,77,150/- under section 115JB of the Act. The Assessing Officer (AO) worked out the disallowance of Rs.12,39,14,341/- under section 14A of the Act r.w.s. Rule 8D of the Income Tax Rules. However, he restricted the disallowance under section 14A of the Act to the extent of expenses of Rs.7,68,43,918/- claimed in the Profit & Loss Account of the assessee. Since the assessee has made suo-moto disallowance of Rs.26,06,419/- under section 14A of the Act in its ITR; therefore, the AO made disallowance of Rs.7,42,37,4990/- (Rs.7,68,43,918/- minus Rs.26,06,419/-) under section 14A of the Act. The sole disallowance of Rs.7,42,37,499/- made under section 14A of the Act has varied the assessed income worked out in both normal provisions and under section 115JB of the Act. Aggrieved the assessee filed appeal before the Ld. CIT(A), which was partly allowed. The Ld. CIT(A), in principle upheld the disallowance made under section 14A of the Act. However, he, following the decision of the Hon’ble Delhi High Court in the 2 Jaypee Infra Ventures Pvt. Ltd. case of Caraf Builders & Constructions (P) Ltd. 414 ITR 122, restricted the disallowance under section 14A of the Act to the extent of the exempted income of Rs.4,35,00,000/- under normal provisions of the Act. Further, the Ld. CIT(A) deleted the addition of Rs.7,42,37,499/- (disallowance of Rs.7,42,37,499/- made under section 14A of the Act) in working out the book profit under section 115JB of the Act.
At the outset, the Ld. Authorized Representative (AR) submitted that this issue is squarely covered by the decision of the tribunal in assessee’s own case for AY 2014-15 in ITA No. 1484/Del/2023. He also drew our attention to the decision of the Hon’ble Delhi High Court in the case of Jaypee Ventures Pvt. Ltd. in order dated 23.01.2018 (Jaypee Ventures Pvt. Ltd. stands amalgamated with the assessee company) to submit that the issue in dispute in the present case also got squarely covered by this decision. Further, it was contended that the AO had not given any reasoning for not accepting the assessee’s suo-moto working of disallowance of Rs.26,06,419/- under section 14A of the Act. Further, it was contended that the AO could not enhance the disallowance under section 14A of the Act without recording any reason for rejecting the assessee’s working of disallowance under section 14A of the Act.
The Ld. AR further placed reliance on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment vs. CIT [2012] 347 ITR 272 and Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC)
Jaypee Infra Ventures Pvt. Ltd. to submit that the application of Rule 8D of the Income Tax Rules is not mandatory. Further, it was submitted that the entire investments made by the appellant assessee were very old investment in group concerns and there was no transaction of purchase and sale during the relevant year. The dividend income of Rs.4,35,00,600/- was received from one of the group concerns; namely, Jaypee Development Corporation Ltd. The details of working of disallowance of Rs.26, 06,419/- was claimed to be sufficient in such circumstances wherein no purchase and sale of any investment was done during the relevant year. Alternatively, it was also submitted that the disallowance under section 14A could not exceed to the limit of investment which yielded dividend exempt income during the relevant year. The dividend income of Rs.4,35,00,600/-, received from Jaypee Development Corporation Ltd., was from the investment of Rs.395.46 crores. Hence, the disallowance should be restricted to Rs.3,95,46,000/- being 1% of the total investment made in Jaypee Development Corporation Ltd.
The Ld. Senior Departmental Representative (Sr. DR) argued the case vehemently and prayed for dismissal of the appeal.
We have heard both parties and have perused the material available on the record. We have taken note of the fact that the AO has not given any reasoning for rejecting the assessee’s suo-moto working of disallowance of Rs.26,06,419/- under section 14A of the Act. Further, it was contended that the AO could not enhance the disallowance under section 14A of the Act Jaypee Infra Ventures Pvt. Ltd. without recording any reason for rejecting the assessee’s working of disallowance under section 14A of the Act. We find that this case is squarely covered by the decision of the Co-ordinate Bench in assessee’s own case in (supra) and the decision of the Hon’ble Delhi High Court in the case of Jaypee Ventures Pvt. Ltd. in order dated 23.01.2018. We therefore, respectfully following the decision of Hon'ble Delhi High Court in the case of Jaypee Ventures Pvt. Ltd. (supra) and the decision of the Co-ordinate Bench in assessee’s own case (supra), we are inclined to delete the disallowance of Rs.4,35,00,600/- under section 14A of the Act confirmed by the Ld. CIT(A). Thus, we order accordingly and allow the respective grounds raised by the assessee. The assessee gets consequential relief in this regard.
In the result, the appeal of assessee is allowed as above.
Order pronounced in open Court on 20th June, 2025.