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Facts
The assessee's appeal was against the order of the Ld. CIT(A) concerning disallowance under Section 14A read with Rule 8D. The AO made additions for Rs. 5,34,459/- based on Section 14A r.w. Rule 8D, which the assessee contested.
Held
The Tribunal held that the Ld. CIT(A)'s order lacked proper reasoning and did not discuss or distinguish case laws. The Tribunal noted that the AO had considered all investments, not just those yielding exempt income.
Key Issues
Whether the disallowance under Section 14A read with Rule 8D was correctly calculated by the AO, considering only investments that yielded exempt income.
Sections Cited
14A, Rule 8D, 143(3), 250, 254(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI GEORGE MATHAN & SHRI SANJAY AWASTHI
Present for: Appellant by : Shri Sharad Joshi, AR Respondent by : Roma Chaudhary, JCIT, Sr. DR Date of Hearing : 20.05.2025 Date of Pronouncement : 20.05.2025 O R D E R Per Bench : The captioned appeal by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeal), Addl/JCIT(A)-1, Mumbai [hereinafter referred to as “the Ld. CIT(A)”] vide order no. ITBA/APL/S/250/2024-25/1071171365(1)(1) dated 12.12.2024, passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2016-17.
Shri Deepak Mundhra and Sharad Joshi, AR represented on behalf of the assessee and Roma Chaudhary appeared on behalf of the revenue.
On perusal of the order of the Ld. JCIT(A), most specifically at page 6 of impugned order, the decision portion reads as under: “Decision: There are mainly three grounds of appeal involved.
M/s Howrah Forgings Ltd. AY 2016-17 Ground No.1 & 2 are interrelated and there decided together. These two grounds relate with addition u/s.14A r.w. Rule 8D. Here it is seen that assessee has shown balance sheet wherein investment made out of reserved & surplus fund but in proceeding u/s.143(3) of the Act, assessee had filed to filed details. Therefore, AO made addition u/s.14A r.w Rule 8D of the Act and demand raised.
In this regard show-cause notice issued. Assessee filed reply vide letter dated 22.08.2023. The submission so made does not stand to rationale and accordingly it is held that AO was right in making addition of Rs.5,34,459/-u/s. 14A r.w Rule 8D of the Act. Hence appeal on these grounds is dismissed. Ground No.3 relates with interest consequential in nature does not require not require adjudication. In the result appeal of the assessee is dismissed.”
The Ld. Sr. DR also was unable to respond as to what the Ld. JCIT(A)-1, Mumbai proposed into the said decision. It is worthwhile to mention here that the assessee has taken pains to give written submissions and explaining his case in detail. Obviously, the appellate authority is expected to apply his mind and a give a reasoned order. The said finding of the appellate authority lacks any reasoning whatsoever. This aspect has been reiterated in numerous decisions of various Hon’ble High Courts and the Hon’ble Supreme Court. Unfortunately, a perusal of the order of the Ld. JCIT(A)-1, Mumbai shows that principles enunciated in such decisions have not percolated to the said appellate authority. Surprisingly even the case laws quoted by the assessee has not been discussed or distinguished.
On perusal of the issues in the appeal it is seen that the issue is in respect of the disallowance u/s 14A read with Rule 8D of the IT Rules. The Ld. AO has admittedly, not considered those investments which have given rise to the exempt income. The Ld. AO has taken the entire investments while computing the disallowance u/s 14A read with Rule 8D. The assessee earned exempt income of Rs. 14,000/- which has been mentioned in the order of Ld. JCIT(A), Mumbai and in the written submissions and grounds of appeal. This being so and in the interest of justice, we restore the issues to the file of Ld. AO, for computing the disallowance u/s 14A on the basis of only those investments which M/s Howrah Forgings Ltd. AY 2016-17 yielded the exempt income. The AO shall apply the principle laid down by the Hon’ble Jurisdictional High Court in the case of REI Agro Limited in ITAT No. 161/Kol/2024 dated 23.12.2013. The principles laid down therein are that the disallowance u/s 14A read with Rule 8D of the I T Rules, shall be only in respect of investments which have resulted in exempt income and not other non- income yielding investments.
6. Also, this Tribunal is suo-moto invoking its powers under section 254(1) of the Act and staying the demand in the said matter till disposal of this appeal by the Ld. JCIT(A)-1, Mumbai by passing a speaking order.
In the result, the appeal of the assessee is partly allowed for statistical purposes.