M/S. MUNJAL AUTO INDUSTRIES LIMITED,BARODA vs. THE ACIT, CIRCLE-4, BARODA

PDF · subscribers
ITA 3038/AHD/2014Status: DisposedITAT Ahmedabad28 June 2019AY 2011-124 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO failed to record dissatisfaction with the assessee's suo motu disallowance and mechanically applied Rule 8D. Following a coordinate bench's decision in the assessee's own case, the disallowance sustained by the CIT(A) was quashed.

What were the facts?

The assessee suo motu disallowed Rs. 50,000/- as expenditure attributable to exempt income. The AO made a higher disallowance under Section 14A, which was confirmed partially by the CIT(A). The assessee argued that the AO did not record any satisfaction for exceeding the suo motu disallowance.

What were the issues?

Whether the AO can make a disallowance under Section 14A exceeding the assessee's suo motu disallowance without recording specific dissatisfaction.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA

For Respondent: Shri Vinod Tanwani, Sr.D.R

आदेश/O R D E R

PER PRADIP KUMAR KEDIA - AM:

1.

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-III, Baroda (‘CIT(A)’ in short), dated 23.09.2014 arising in the assessment order dated 19.03.2014 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2011-12.

[Munjal Auto Industries Ltd. vs. AC IT] A.Y. 2011-12 - 2 - 2. In the captioned appeal, the assessee is aggrieved by the action of the CIT(A) in confirming the partial disallowance to the extent of Rs.14,82,534/- under s.14A of the Act.

3.

When the matter was called for hearing, the learned AR for the assessee pointed out at the outset that the assessee has estimated an amount of Rs.50,000/- and has made suo motu disallowance itself as attributable to exempt income. The AO has not recorded any objection satisfaction as to how the expenditure incurred by the assessee in relation to earning of the income which is not includable in computing total income of the assessee exceeds the aforesaid suo motu disallowance. The learned AR for the assessee pointed out that identical issue came up in assessee’s own case concerning AY 2009-10 before the Tribunal in & 1998/Ahd/2012 order dated 28.11.2016. The learned AR accordingly urged that disallowance sustained by the CIT(A) towards administrative and managerial expenses are called for and deserves to be quashed.

4.

The learned DR, on the other hand, relied upon the orders of the authorities below.

5.

We find from the submissions of the assessee before the CIT(A) that a sum of Rs.50,000/- was disallowed by the assessee itself suo motu has remained uncontroverted. The identical issue in identical facts has come up in assessee’s own case before the co-ordinate bench concerning AY 2009-10 in & 1998/Ahd/2012 order dated 28.11.2016. The relevant operative paras from the aforesaid order are reproduced hereunder: [Munjal Auto Industries Ltd. vs. AC IT] A.Y. 2011-12 - 3 -

“12. We find that the submission of the assessee before the CIT(A) a sum of Rs.50,000/- has been disallowed by the assessee itself suo motu has remained uncontroverted. On a broader consideration, we also note that the investments were largely made in the earlier years and has been carry forwarded in the current year with a very few movements therein. The assessee has computed disallowance which was claimed to be sufficient by the assessee having regard to the facts and circumstances of the case. Notwithstanding the aforesaid stand of the assessee on this account, the AO mechanically applied Rule 8D(2)(iii) without examining the merits of the assessee’s stand and without recording any satisfaction as to how the disallowance offered by the assessee is incorrect having regard to account of the assessee. We note that no lack of satisfaction with regard to the correctness of the accounts of the assessee in respect of such expenditure in relation to the exempt income has been recorded by the AO as contemplated under section 14A(2) of the Act. We are of the considered view that under the circumstances, where the Revenue has failed to record dissatisfaction on the correctness of the claim of the assessee with respect to disallowance offered, it is not open for it to resort Rule 8D(2)(iii) in terms of IT Rules, 1962. We find that in terms of section 14A of the IT Act r.w.Rule 8D of IT Rules, the onus is on the AO to show how the assessee’s claim is incorrect. A bare reading of section 14A of the Act would suggest that its applicability is not automatic. It is hedged by condition prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure cannot be said to be attributable to tax-free income by applying a straight jacket formula as per Rule 8D(2)(iii) of the IT Rules without demonstrating incorrectness in the offer of disallowance made by the assessee. Hence, we are disposed to adjudicate the issue in favour of the assessee. Thus, the order of CIT(A) on disallowance of administrative and managerial expenses stands vacated.”

[Munjal Auto Industries Ltd. vs. AC IT] A.Y. 2011-12 - 4 -

6.

There being no substantive variation in facts, the conclusion drawn in earlier assessment year shall apply mutatis mutandis. We accordingly set aside the order of the CIT(A) and direct the AO to delete the disallowance made under Rule 8D(2)(iii) towards administrative and managerial expenses etc.

7.

In the result, appeal of the assessee is allowed.

This Order pronounced in Open Court on 28/06/2019

Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 28/06/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।

More judgments on Section 14A

All 15,875 judgments and leading authorities on Section 14A →

Recent GST High Court judgments

Search GST case law →