Once Assessee is in a position to show that it has been over assessed even due to assessee’s own mistake or otherwise, the Revenue has to assess correct income : Ahemdabad ITAT
ISSUE before Tribunal was –
Whether mere admission on part of assessee with respect to an addition/disallowance in its original/revised return, would ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. NO IS THE ANSWER.
Facts of the case:
The Revenue Department preferred present appeal challenging the action of CIT(A) in deleting the disallowance made by AO by invoking the provisions of Section 14A. When the matter was called for hearing, the AR adverted the attention of this Tribunal to the undisputable fact recorded by the AO that the investments made by assessee company had not given rise to any exempt income concerning the assessment year. Notwithstanding such fact, the assessee voluntarily disallowed Rs.98.03 Lakhs against the non-existent tax free income. The AO however re-worked the disallowance at Rs.1,67,32,314/- and after reducing the disallowance suo moto made by assessee amounting to Rs.98,03,322/- computed the additional disallowance u/s 14A at Rs.69,28,992/-. The AR thereafter submitted that the assessee preferred appeal before the CIT(A) and withdrawn the suo moto disallowance of Rs.98,03,322/- being wrongly offered in its return under erroneous impression of law.
Tribunal held that,
it is noted that CBDT Circular No. 5/2014 which seeks to emphasize that all expenses pertaining to an exempt income is required to be disallowed notwithstanding the fact that no corresponding tax free income has been earned during the financial year. Notwithstanding the said circular, various Courts have held that Section 14A disallowance cannot be kicked when there was no exempt income earned by the assessee as is the case in the present appeals. Hence, in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) which essentially holds that Section 14A can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A cannot be invoked where no exempt income was earned in the relevant assessment years;
the second issue raised on behalf of the Revenue regarding propriety of the action of the CIT(A) in granting relief on the suo moto disallowance beyond the return of income and in the absence of any formal revised return. This Tribunal fully endorses the observations of CIT(A) which essentially holds that the mistake or inadvertence on the part of assessee, whereby an income not taxable has been wrongly offered for tax, will not operate as any kind of estoppel against the assessee and regardless of whether the revised return was filed or not. Once the assessee is in a position to show that it has been over assessed under the provisions of the Act even on account of assessee’s own mistake or otherwise, the Revenue is under duty to assess correct income. It is trite that the authorities under the Act are under sacrosanct obligation to act in accordance with law. Tax can be collected only as provided under the Act;
mere admission on the part of assessee with respect to an addition/disallowance in its original return or in revised return would not ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. It is thus well settled that if a particular income is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. The Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is thus open to assessee to show that it was over assessed in correctly owing to its own mistake. So viewed, there is no potency in the argument laid on behalf of the Revenue that the CIT(A) allegedly committed error in granting total relief in the matter of disallowance u/s 14A.