While grating relief to the Zee Entertainment (appellant), the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that in the absence of proper satisfaction recorded by the Assessing Officer with regard to the correctness of the taxpayer’s computation, disallowance under section 14A of the Income Tax Act read with Rule 8D is not sustainable, and the arbitrary computation of disallowance by the Assessing Officer is liable to be deleted.
The ITAT thus declared the reopening notice issued under section 148 as barred by limitation and invalid in law; consequently, the reassessment proceedings initiated pursuant to such invalid notice are void ab initio and liable to be quashed.
The Division Bench comprising Anikesh Banerjee (Judicial Member) and Arun Khodpia (Accountant Member) observed that the six-year limitation period under the old regime of section 149(1)(b) expired on March 31, 2022. The reassessment notice was admittedly issued on July 29, 2022, which is after the expiry of the six-year limitation period.
By virtue of the first proviso to section 149(1), reassessment notices for assessment years prior to A.Y. 2021-22 cannot be issued if the time limit prescribed under the old regime had already expired on the date of issuance of the notice. Further, the extended time limit of ten years under the new regime cannot revive cases which were already time-barred under the earlier law, added the Bench.
Regarding A.Y. 2019-20, the Tribunal observed that the appellant had computed the average monthly investment at Rs.15 lakhs and suo motu disallowed 1% thereof amounting to Rs.15,000/- under section 14A of the Act. The investments were carried at historical cost as reflected in the books of account, and no fresh investments were made except in respect of Tata Liquid Fund, which were made and liquidated within the same month.
The Tribunal noted that the AO did not record any dissatisfaction with regard to the correctness of the appellant’s computation, but proceeded to recompute the disallowance independently without rejecting the appellant’s working. Hence, the Tribunal concluded that the AO arbitrarily computed the disallowance under section 14A of the Act, and the CIT(A) erred in sustaining the addition.
Briefly, the appellant filed the return declaring a total income of Rs.1221.91 Crores and subsequently filed a revised return declaring a total income of Rs.1221.42 Crores. The assessment was completed under Section 143(3), assessing a total income of Rs.1221.58 crores. Later, the case was reopened by issuing a reopening notice under the old provision. The appellant challenged the notice as being barred by limitation based on the Supreme Court order in UOI vs Rajeev Bansal.
For A.Y. 2019-20, the issue related to the disallowance u/sec. 14A read with rule 8D of the Income Tax Rules 1962. The appellant earned a total dividend income of Rs.56.81 lakhs out of which Rs.49.12 lakhs was claimed as exempt under section 10(34) of the Act and Rs.7.68 lakhs was taxable. The appellant suo moto disallowed Rs.15,000/- at the rate of 1% of the average monthly investment of Rs.15 lakhs.
The AO however, invoked provision 14A and disallowed expenses related to 1% of the average monthly investment of Rs.132.33 Crores, and added back the balance amount of Rs.1.32 Crores to the total income. On appeal, the CIT(A) restricted the disallowance to the extent of Rs.49.12 Lakhs related to the exempted income.
Appearances:
Madhur Agarwal and Jayesh Chobisa, for the Appellant/ Taxpayer
Dhiraj Kumar, for the Respondent/ Revenue
