Whether where assessee has restrained himself from contesting tax effect in respect of disallowance u/s 14A, such concession on part of assessee should not be held against him in any other proceedings - YES: HC

THE issue before the Bench is - Whether where the assessee has restrained himself from contesting the tax effect in respect of disallowance u/s 14A r/w Rule 8D, such concession on the part of assessee should not be held against him in any other proceedings. YES is the answer.

Facts of the case

The assessee company is engaged in the business of manufacturing and packing of pharmaceutical products such as tablets and hard gelatin capsules. The assessee had filed its return claiming deduction on administrative cost incurred by it for earning dividend income. The assessee also claimed exemption on income earned from SEZ. The AO however, disallowed such deduction and exemption in respect of administrative cost as well as income from SEZ u/s 14A r/w Rule 8D respectively. On appeal, the CIT(A) as well as the Tribunal reversed the order of AO by setting aside the disallowances.

Having heard the parties, the High Court held that,

++ as regards the issue of disallowance u/s 14A on account of administrative costs incurred to earn exempt divided income, the Tribunal has remanded the matter back to the file of AO. The contention of the Revenue is that in view of the decision of this Court in Godrej & Boyce Manufacturing Co. Ltd. v/s. DCIT, Rule 8D is to be applied and the directions to adopt a reasonable method of disallowance, is not correct. Assesee's counsel however states that even if Rule 8D is applied, the tax effect would be very negligible. Therefore, he is instructed not to contest the same. However, this concession on the part of the assessee should not be held against him in any other proceedings. Therefore, the matter is remanded back to the Tribunal for consideration afresh;

++ as regards the issue of disallowance u/s 14A made on account of income from SEZ, it is found that the impugned order of the Tribunal on this issue has followed its order in the assessee's own case for the A.Y 2007-08. There has been no independent application of mind to this issue in the impugned order. The order of the Tribunal for A.Y was a subject matter of appeal by the Revenue, wherein this Court has specifically clarified that the observations made with regard to the above issue be ignored as the observations made with regard thereto were beyond a scope of the appeal before the Tribunal. In view of these observations, this Court sets aside the impugned order and restore the same to the Tribunal to decide it afresh on merits, after considering the rival submissions.