When is disallowance not sustainable in law as per settled legal position?

Last updated: 20 August 2021

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This Income Tax Appellate Tribunal order addresses disallowance claims under Section 14A for assessment years 2015-16 and 2016-17. The Assessing Officer (AO) made an additional disallowance of Rs. 38.99 Lacs based on 0.5% of average investments. However, the Tribunal found that without recorded satisfaction, this additional disallowance could not be sustained in law and was therefore deleted.

Court :
ITAT Mumbai

Brief :
The only grievance of the assessee in aforesaid appeals for Assessment Year (AY) 2015-16 & 2016-17 is disallowance u/s 14A. The facts are pari-materia the same in both the years and therefore, the appeals were heard together and are now being disposed-off by way of this common order for the sake of convenience & brevity.

Citation :
I.T.A. No.354 & 355/Mum/2020

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI

BEFORE HON’BLE SHRI AMARJIT SINGH, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM (Hearing through Video Conferencing Mode)

I.T.A. No.354 & 355/Mum/2020

Assessment Year: 2015-16 & 2016-17

M/s Shardul Securities Ltd. G-12, Tulsiani Chambers Free Press Road 212 Nariman Point, Mumbai-400 021

PAN/GIR No. AAACS-7141-R

Appellant

DCIT Range- 3(3)(1) 6th floor, R. No. 609 Aayakar Bhavan, M. K. Road, Mumbai-400 020.

Respondent

Assessee by: Shri Anuj Kisnadwala– Ld. AR
Revenue by: Shri Vijay Kumar Menon– Ld. DR

Date of Hearing: 28/07/2021

Date of Pronouncement:02/08/2021

O R D E R

The only grievance of the assessee in aforesaid appeals for Assessment Year (AY) 2015-16 & 2016-17 is disallowance u/s 14A. The facts are pari-materia the same in both the years and therefore, the appeals were heard together and are now being disposed-off by way of this common order for the sake of convenience & brevity.

2.During assessment proceedings, the assessee submitted that, keeping in view assessee’s computations, no further disallowance would be warranted. However, not convinced with assessee’s explanation, Ld. AO computed additional disallowance of Rs.38.99 Lacs u/r 8D(2)(iii) being 0.5% of average investments.

3.In the absence of such recorded satisfaction, the additional disallowance as made in assessment order could not be sustained in the eyes of law. Accordingly, we are inclined to delete the additional disallowance of Rs.38.99 Lacs as made by Ld. AO while computing income under normal provisions as well as while computing Book Profits u/s 115JB.

4.Both the appeals stand partly allowed in terms of our above order.

Order pronounced on 2nd August, 2021.

Please find attached the enclosed file for the full judgement.

FAQ :

The main issue is the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act for the assessment years 2015-16 and 2016-17.

The Assessing Officer computed an additional disallowance of Rs. 38.99 Lacs, calculated as 0.5% of the average investments, under Rule 8D(2)(iii).

The additional disallowance was not sustained because there was an absence of recorded satisfaction by the Assessing Officer.

The Tribunal decided to delete the additional disallowance of Rs. 38.99 Lacs made by the Assessing Officer.

Both appeals filed by the assessee have been partly allowed in terms of the Tribunal's order.