ITAT upheld reassessment and directed AO to recompute disallowance u/s 14A (of Income Tax Act, 1961)

1 Assessee's case was picked up for scrutiny assessment and the assessment u/s 143(3) (of Income Tax Act, 1961) was framed. AO made disallowance of interest paid to the Sun Pharma Group of Rs.66,19,55,722/-, disallowance of discount claim of Rs.7,34,80,655/- and disallowance of donation of Rs.11,00,000/-; thus, he made the addition of Rs.33,65,43,377/- as against the returned income of Rs.1,82,77,859/-.

2 Subsequently, the CIT u/s 263 (of Income Tax Act, 1961) directed the AO to pass a fresh de novo assessment order proposed to revise as assessee had earned exempted income of Rs.4,22,54,212/- which did not form part of total income, and had offered only Rs.50,000/- for disallowance u/s 14A (of Income Tax Act, 1961). CIT(A) computed the disallowance u/s 14A (of Income Tax Act, 1961) read with Rule 8D (of Income Tax Rules, 1962) at Rs.2,15,16,31,588/- as against Rs.6,06,477/- made by the assessee.

3 On appeal, the ITAT held as under:

"There is no dispute with regard to the fact that the Assessing Officer has not made any enquiry with regard to the exempt income during the assessment proceedings and non-conducting of the enquiry by the Assessing Officer is an erroneous approach. The learned CIT is empowered u/s 263 (of Income Tax Act, 1961) to initiate the proceedings in case the Assessing Officer has not conducted any enquiry and applied his mind on the issue. Therefore, the initiation of proceedings u/s 263 (of Income Tax Act, 1961) is concerned, we do not see any illegality in to the act of the learned CIT. Therefore, the Ground No.1 of the assessee's appeal is rejected.…14. The ld. Counsel appearing on behalf of the assessee has admitted the fact that the Assessing Officer has not examined the issue of disallowance of expenditure u/s 14A (of Income Tax Act, 1961). There is also no dispute with regard to the fact that the assessee has earned exempt income and for the purpose of computation of disallowance, method prescribed under Rule 8D (of Income Tax Rules, 1962) is to be adopted, subject to satisfaction of conditions as prescribed under the Act. It is also not in dispute that the assessee has suo motto disallowed the expenditure of Rs.50,000/-. The Assessing Officer has not given any finding as to whether he is satisfied about such disallowance or not. During the course of appellate proceedings, the assessee itself has computed disallowance u/s 14A (of Income Tax Act, 1961) at Rs. 6,06,477/- which is much higher than the amount disallowed by the assessee in its Return of Income. Under these facts, we are unable to accept the contention of ld. Sr. Counsel that the assessment order is not prejudicial to the interest of the Revenue. However, we direct the Assessing Officer while working out disallowance u/s 14A (of Income Tax Act, 1961), he would keep in mind the observations as made by the Co-ordinate Bench in ITA No.1334/Ahd/2015. This ground of the assessee's appeal is disposed of in the term of discussions made hereinabove. Accordingly, the appeal of the assessee is dismissed.”

News Reference: IN THE INCOME TAX APPELLATE TRIBUNAL

"D" BENCH, AHMEDABAD

BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER

AND SHRI KUL BHARAT, JUDICIAL MEMBER

./ ITA No. 1616/Ahd/2014

/Assessment Year: 2009-10

Aditya Medisales Ltd,

The CIT-I