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Facts
The assessee's appeal against the CIT(A)'s order was dismissed in limine for alleged delay. The assessee claimed the delay was condoned due to COVID-19 pandemic extensions. The CIT(A) also failed to decide the grounds of appeal on merits, including disallowance under Section 14A and addition under Section 115JB.
Held
The Tribunal held that the CIT(A) erred in dismissing the appeal without deciding on merits and by failing to provide proper opportunity. The disallowance under Section 14A was deleted as there was no exempt income. The addition under Section 115JB was restored to CIT(A) for fresh adjudication.
Key Issues
Whether the appeal was rightly dismissed in limine due to delay, and whether the disallowance under Section 14A and addition under Section 115JB were correctly made by the lower authorities.
Sections Cited
249, 115JB, 14A, 8D, 250, 251
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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI AVDHESH KUMAR MISHRA
Date of Hearing 24/04/2025 Date of Pronouncement 20/06/2025 ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for the Assessment Year (AY) 2018-19 is directed against the order dated 26.06.2024 of the Commissioner of Income Tax (Appeals), NFAC, New Delhi [hereinafter, the ‘CIT(A)’].
The assessee has raised following grounds of appeal: -
1. That on the facts and in law the impugned order u/s 250 dated 26.06.2024 passed by the Learned Commissioner of Income Tax Appeals, National Faceless Appeal Centre [Ld. CIT(A)) is bad in law.
2. That the Ld. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant on account of alleged delay in filing the same beyond time limit prescribed u/s 249. There is no such delay. The appeal was filed during COVID-19 period within the extended time limit as per Hon'ble Supreme Court order dated 27.04.2021 [Suo Motu Writ Petition (Civil) NO.3 of 2020] and also CBDT circular dated 25.05.2021. As such, the subject appeal may please be restored to the file of CIT(A) for passing fresh order on merits on all grounds of appeal
after granting proper lawful opportunity of being heard.
3. That the Ld. CIT(A) has erred in not disposing of the grounds of appeal related to following additions/disallowances on merits. (i) Addition u/s 115JB Rs 2,76,893/- made in computation of Income annexed with Assessment order without opportunity. No addition in body of the assessment order. (ii) Disallowance u/s 14A-Rs 6,57,25,564-Such disallowance made as per Rule 8D deserves to be deleted in toto inter alia on following grounds: (a) Rule 8D cannot be applied without recording proper satisfaction by Ld.AO; (b) 14A not applicable when no exempt income is received; and (c) Rule 8D if applicable, can be applied only on such investments which yielded exempt income.
4. That the order of the Ld. AO and the impugned order by Ld. CIT(A) is based on erroneous views and / or non-appreciation of the facts or law involved and without specific lawful opportunity of being heard properly and without properly considering and rebutting the material, submissions, case laws and CBDT Circular etc. in favour of assessee relied upon.
5. That the Grounds of Appeal as herein are without prejudice to each other.
6. That the appellant craves leave to add, amend, modify and/or forgo any of the grounds of appeal before or at the time of hearing.”
2.1 From perusal of the above-mentioned grounds, it is evident that the assessee has challenged following issues in this appeal: i. Dismissal of appeal treating the same belated with no condonation application, ii. Disallowance of Rs.6,57,25,564/- under section 14A of the Income Tax Act, 1961 (Act) and iii. Addition of Rs.2,76,893/-, without justification, in computation of income annexed with the assessment order while working out income in accordance with section 115JB of the Act.
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 17.09.2018 declaring income of Rs.21,58,60,660/- under normal provisions. The case was picked up for scrutiny and consequential assessment was completed at income of Rs.28,15,86,220/-. The Assessing Officer (AO) worked out the disallowance of Rs.12,75,84,505/- 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.6,91,49,764/- claimed in the Profit & Loss Account of the assessee. Since the assessee has made suo-moto disallowance of Rs.34,24,200/- under section 14A of the Act in its ITR; therefore, the AO made disallowance of Rs.6,57,25,564/- (Rs.6,91,49,764/- minus Rs.34,24,200/-) under section 14A of the Act. Aggrieved the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal in limine.
The first issue raised vide ground Nos. 1 and 2 are in respect of dismissal of appeal in limine by the Ld. CIT(A) on the reasoning that the said appeal was filed after specified time and there was no request to condone the said delay. However, the Ld. Authorized Representative (AR) drew our attention to the fact that the assessee had filed a detailed reply [page 137 to 154 of the PB] to the clarificatory letter [page 135 & 136 of the PB] dated 26.07.2022 of the Ld. CIT(A). It was contended that the said appeal was not belated as inferred by the Ld. CIT(A). But the said appeal was filed within the extended time period available due to Covid. In this regard, our attention was drawn to the order dated 27.04.2021 of the Hon’ble Supreme Court and CBDT Circular No. 10/2021 dated 25.05.2021. Since, the Ld. CIT(A) had dismissed the appeal on limitation ground and not decided other issues on merit; therefore, the Ld. AR prayed for deciding the present appeal on merit also as against the request made in ground Nos.1 and 2 for remitting the matter back to the file of the Ld. CIT(A). The Ld. AR submitted that the issue of disallowance under section 14A of the Act did not arise here as was no exempt income in the relevant year. The Ld. AR placed reliance on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment [2012] 347 ITR 272 and Godrej & Boyce Manufacturing Co. Ltd. [2017] 394 ITR 449 (SC) to submit that the Rule 8D of the Income Tax Rules could not be mandatorily applied in almost all cases.
On the other hand, the Ld. Senior Departmental Representative (Sr. DR) argued vehemently and defended orders of authorities below. He prayed for dismissal of this appeal.
We have heard both parties and have perused the material available on the record. We take note of the fact that the Ld. CIT(A) has dismissed the appeal ex parte without considering the assessee’s submission and has not adjudicated the case on merits though he is required to decide each ground of appeal after discussing the issues in detail and his reasons for agreeing with the assessment order as per provisions of section 250(6) of the Act. It is evident from the perusal of section 251(1)(a), 251(1)(b) and Explanation of section 251(2) of the Act that the CIT(A) is required to apply his/her mind to all the issues which arise from the impugned order before him/her, whether or not these issues have been raised by the assessee before him/her. However, the impugned order is not found in accordance with provisions of sections 250 and 251 of the Act; we, therefore, set aside the impugned order and decide the issues in dispute in foregoing paras.
7. The next issue is in respect of the disallowance of Rs.6,57,25,564/- under section 14A of the Act. Admittedly, there is no exempt income in the hands of the assessee in the relevant year. We take note of the fact that the Ld. CIT(A), following the decision of the Hon’ble Delhi High Court in the case 5 of Caraf Builders & Constructions (P) Ltd. 414 ITR 122, restricted the disallowance of Rs.7,42,37,499/- made under section 14A of the Act by the AO to the extent of the exempted income of Rs.4,35,00,000/- in assessee’s case in the AY 2017-18. However, the Ld. CIT(A) has not followed his own decision in the subsequent year. It is worth mentioning here that the assessee, on the issue of disallowance under section 14A of the Act, is in appeal in AY 2017-18 in Tribunal; ITA No. 3946/Del/2024. However, the Revenue is not in appeal in Tribunal on this issue though the relief allowed by the Ld. CIT(A) in AY 2017-18 is more than Rs.3.00 Crores. This fact itself goes in the favour of the assessee.
8. We are of the considered view that issue of disallowance under section 14A of the Act raised in this appeal is squarely covered by the decision of the Hon'ble Delhi High Court in the cases of Cheminvest Ltd. reported in 378 ITR 33, Caraf Builders & Constructions (P) Ltd. 414 ITR 122 and Era Infrastructure India Ltd. reported in 448 ITR 674. We therefore, respectfully following the decision of Hon'ble Delhi High Court in the case of Era Infrastructure Ltd. (supra), delete the disallowance of Rs.6,57,25,564/- made under section 14A of the Act by the AO and confirmed by the Ld. CIT(A). The respective grounds raised in this regard are thus stand allowed accordingly. The assessee gets consequential relief.
9. The next issue is in respect of addition of Rs.2,76,893/- in computing book profit in accordance with section 115JB of the Act. Before us, the Ld.
AR simply contended that the AO had given any reasoning for the said addition in the body of the order’ but he failed to demonstrate the illegality of addition of Rs.2,76,893/- in computing book profit in accordance with section 115JB of the Act. In the interest of justice, we deem it fit to restore this matter to the file of the Ld. CIT(A) for deciding it afresh after affording reasonable opportunity of being heard to the assessee.
In the result, the appeal of assessee is partly allowed as above.
Order pronounced in open Court on 20th June, 2025.