The Delhi High Court ruled that after careful consideration, it is appropriate to reject the disallowance requested under Section 14A.
The facts giving rise to the appeal are that the Appellant, Assessee, had filed its return of income for the relevant assessment year, declaring an income of Rs. 198,88,65,682/-. The Assessee earned dividend income of Rs. 5,80,00,000/- in the said year, which was claimed as exempt income under Section 10(34) of the Act.
The Assessee had suo moto disallowed a sum of Rs.1,00,000/- as expenditure towards administrative expenses under Section 14A of the Act, in respect of the said tax-free income.
The Assessing Officer was not satisfied with the working of the disallowance made by the Assessee and he, therefore, determined a sum of Rs. 1,44,85,000/- as the disallowance towards administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules, 1962.
Counsel for the Assessee submitted that the Tribunal erred in holding that the AO has duly recorded its proper satisfaction in terms of Section 14A(2) of the Act, without considering the submissions of the Assessee and the judgment of this Court in Assessee’s own case for AY 2008-09 being H.T. Media Ltd. vs. Principal Commissioner of Income Tax, (2017).
He contended that the Tribunal erred in upholding the disallowance without appreciating that the AO has not recorded his satisfaction and therefore, the disallowance of Rs. 1,00,000/- in its ROI should have been accepted.
Ajit Sharma, senior standing counsel for the Revenue submitted that the Tribunal and the CIT(A) have returned concurrent findings in both the appeal(s) upholding the satisfaction recorded by the AO for disallowance of the expenses under Section 14A of the Act.
He contended that the Tribunal has relied upon the judgment of the Court in Assessee’s own case for AY 2010-11 while determining the value of investment to be considered for disallowance under Rule 8D. He states that in AY 2010-11 and 2011-12 disallowance under Section 14A of the Act, read with Rule 8D has been upheld.
The division bench of Justice Manmeet Pritam Singh Arora and Justice Manmohan observed that the submission of counsel for the Assessee that the method adopted by the Assessee for calculating the disallowance had been upheld in AY 2008-09 and therefore the same should be accepted in the AY(s) 2012- 13 and 2013-14, which are subject matter of the present appeal(s), on the principle of consistency, is incorrect and contrary to the record.
It was further observed that in the intervening AY(s) 2010-11 & 2011-12, the method of disallowance adopted by Assessee was rejected by the AO and the said rejection was confirmed by the ITAT. The said order of ITAT has not been challenged by Assessee and has attained finality. Thus, the submission of the Assessee on the basis of principle of consistency does not hold ground.
The bench said that the Court in its decision for AY 2008-09 while setting aside the deletion under Section 14A has not upheld the self – devised method adopted by Assessee for making the allowance but adjudicated on the failure of the AO to record his proper satisfaction before invoking Section 14A.
It was held by the court that the AO has applied his mind to the controversy as he firstly examined accounts, secondly duly invited the reply of the Assessee to explain the basis of the disallowance offered by the Assessee and thirdly after examining the explanation of the Assessee has recorded its dissatisfaction after observing that the ‘basis’ adopted by the Assessee for making such an estimate was unclear.
Case title: H.T. Media Limited v/s Principal Commissioner of Income Tax-4, Delhi
Citation: ITA 77/2022