2018 (4) TMI 1770 - AT - Income Tax

Disallowance u/s.14A r.w. Rule 8D(2) - If the disallowance made by the AO u/s.14A r.w. Rule 8D(2) of the I.T. Rules 1962 is sustainable when there is no satisfaction invoking the provisions of the Act/Rules ? HELD THAT - As decided in the assessee s own case for A.YRs. 2006-07 2011-12 2018 (3) TMI 425 - ITAT PUNE satisfaction recorded by the AO in Para No.5.1 is extremely based on the suspicion and surmises. The satisfaction arrived at by the AO with reference to the entries in the books of account of the assessee and also having regard to the correctness of the claim of the assessee. In that sense of the matter the satisfaction recorded by the AO is extremely generic and which falls short of the legal requirement for assuming jurisdiction u/s.14A of the Act. Buffer disclosure - Undisclosed income - absence of any clear omissions or commissions or discrepancies made out by the AO for taxing the said sum - HELD THAT - As decided in Serum Institute of India Ltd. Vs. DCIT 2018 (3) TMI 391 - ITAT PUNE onus is on the AO to establish the omissions and commissions before the AO proceeded to tax the said buffer disclosure of Rs. 60 lakhs. As such AO did not examine this aspect of the issue. CIT(A)/A) are of the opinion that the assessed income may not be less than the returned income. Therefore with similar directions to the AO we remand the issue to the file of AO. Accordingly this issue is adjudicated pro tanto. Allowability of the claim relating to the Group Gratuity Scheme - HELD THAT - The issue stands covered against the assessee by the order of Tribunal in its own case for the A.YRs. 2006-07 to 2011-12 2018 (3) TMI 425 - ITAT PUNE held that the order of CIT(A) on this issue is fair and reasonable as the scheme has not been approved till date as admitted by the Ld. AR for the assessee. Hence it does not call for any interference on this issue. - Decided against assessee.

Summary

Issues Involved:
1. Sustainability of disallowance under Section 14A read with Rule 8D(2) in the absence of valid satisfaction.
2. Requirement of set-off of disallowance against buffer disclosure during search and seizure.
3. Reduction of returned income by the buffer disclosure amount in the absence of clear omissions or discrepancies.
4. Allowability of claim relating to Group Gratuity Scheme without approval by the competent authority.

Detailed Analysis:

First Issue:
Sustainability of Disallowance under Section 14A read with Rule 8D(2):

The Assessee contended that the disallowance made by the AO under Section 14A read with Rule 8D(2) is unsustainable as there was no valid satisfaction recorded by the AO. The Tribunal in the Assessee's own case for AYs 2006-07 to 2011-12 had deleted similar disallowance due to the lack of specific satisfaction. The Tribunal referred to the Apex Court's judgment in Godrej and Boyce Manufacturing Company Ltd. vs. DCIT, which mandates that the AO must record satisfaction based on the accounts of the Assessee before invoking Section 14A. The Tribunal found that the AO's satisfaction was generic and based on suspicion, thus falling short of the legal requirement. Consequently, the Tribunal directed the deletion of the disallowance of Rs. 24,69,760/- made by the AO under Section 14A.

Second Issue:
Requirement of Set-off of Disallowance against Buffer Disclosure:

Since the Tribunal decided that the disallowance under Section 14A was unsustainable, the question of set-off against the buffer disclosure of Rs. 60 lakhs became academic. Therefore, this issue was dismissed as academic.

Third Issue:
Reduction of Returned Income by Buffer Disclosure Amount:

The Assessee argued that the buffer disclosure of Rs. 60 lakhs should not be taxed in the absence of clear omissions or discrepancies identified by the AO. The Tribunal referred to a similar case involving the Assessee's sister concern, Serum Institute of India Ltd., where it was held that voluntary disclosure should not be taxed if no specific discrepancies were found. The Tribunal emphasized that the AO must assess the income based on the real income concept, and the assessed income can be lower than the returned income. The Tribunal directed the AO to verify the working of the total undisclosed income and apply the legal principles established in previous judgments, including the Nagpur Bench decision in DCIT vs. Sanmukhdas Wadhwani. The issue was remanded to the AO for further adjudication with specific directions.

Fourth Issue:
Allowability of Claim Relating to Group Gratuity Scheme:

The Assessee admitted that the Group Gratuity Scheme was not approved by the competent authority. The Tribunal referred to its earlier decision for AYs 2006-07 to 2011-12, where the claim was disallowed for the same reason. Consequently, the Tribunal upheld the disallowance of Rs. 1,16,601/- for the Group Gratuity Scheme.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the deletion of the disallowance under Section 14A and remanding the issue of buffer disclosure to the AO for further verification. The disallowance related to the Group Gratuity Scheme was upheld.