Three Important High Court Verdicts On S. 14A Disallowance, S. 271(1)(c) Penalty And ITAT Remand Power

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

CIT vs. Lakhani Marketing (P&H High Court)

S. 14A disallowance cannot be made if the assessee has no tax-free income in the year

From the reading of s. 14A of the Act, it is clear that before making any disallowance the following conditions are to exist:- a) That there must be income taxable under the Act, and b) That this income must not form part of the total income under the Act, and c) That there must be an expenditure incurred by the assessee, and d) That the expenditure must have a relation to the income which does not form part of the total income under the Act. Therefore, unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), s. 14A of the Act cannot be invoked (Hero Cycles 323 ITR 518 (P&H) and Winsome Textile 319 ITR 204 (P&H) followed)

CIT vs. Triveni Engineering & Industries Ltd (Allahabad High Court)

S. 271(1)(c)/ 271(1B): If, in the assessment order, AO directs initiation of penalty on specific issues but not on others, he is not entitled to levy penalty on the other issues

Undoubtedly, as held in Mak Data 358 ITR 593 (SC), the AO has to satisfy himself whether penalty proceedings should be initiated or not during the course of assessment proceedings and he is not required to record his satisfaction in a particular manner or reduce it into writing. However, in the present case there is no direction whatsoever by the AO in respect of the specific head of interest on the SDF loan, on which the penalty was deleted by the Tribunal. This omission in the case of the SDF loan stands in sharp contrast to those items where the AO has specifically directed the initiation of penalty proceedings u/s 271(1)(c). Consequently, the Tribunal was justified in deleting the penalty u/s 271(1)(c) in respect of the SDF loan

Kansai Nerolac Paints Ltd vs. DCIT (Bombay High Court)

S. 254: If a legal issue is raised (even for the first time) ITAT has the duty to deal with it and cannot remand it to lower authorities

The Tribunal should have answered the legal issue itself. The Tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, more so, if this legal issue goes to the root of the matter. The issue was an impact and legal effect of a order of amalgamation and winding up of the assessee thereto on the penalty proceedings have been initiated and were continuing. If they were initiated prior to the order of the winding up passed or the scheme of amalgamation being sanctioned, then, whether the subsequent act of a order sanctioning the scheme would permit continuation of the proceedings against an entity or company which is wound up and in terms of the provisions contained in the Act was, thus, a clear legal issue. It should have been answered by the Tribunal, particularly when it had admitted the question or ground and also the additional evidence filed by the assessee. The only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by this Court. If that was the admitted factual position and based on which the legal issue was raised, then, the Tribunal was obliged to answer the legal question. Its omission to answer it, therefore, is vitiated in law. The Tribunal is a last fact finding Court and equally if it could have been approached by the assessee both on law and fact, then, in the given circumstances, the Tribunal should have answered this issue and its failure to do so can safely be termed as not performing its duty in law. The direction to remit and to remand it to the AO is not justified and in the peculiar facts and circumstances noted above

Regards,

 

Editor,

 

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