“State cannot Clutch the Undue Benefit of Mistake Committed by Tax Payer”: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Delhi Bench, has recently, in an appeal filed before it, held that State cannot clutch the undue benefit of mistake committed by the taxpayer.

The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the Revenue, as against the order of the CIT(A), New Delhi, dated 16.09 .2019.

The Revenue’s ground of appeal being the question as to whether, on the facts and circumstances of the case, the CIT(A) has erred in law and on facts, in allowing relief to the assessee on the Suo moto disallowance made by the assessee u/s 14A read with rule 8D of the Income Tax rules, 1962, in his return of income filed on 25 .11 .2015, the facts of the case were that the assessee company had filed a return of income declaring a loss of Rs.16 .13 crores.

The assessee company suffered suo moto disallowance, an amount of Rs. 9.9 crores consisting of interest of Rs. 9.5 crores and other expenses of Rs. 40 lakhs, on account of disallowance u/s 14A read with Rule 8D.

Before the AO, the assessee having pleaded that the amount has been wrongly disallowed Suo moto and hence that remission be granted from the returned income, the CIT(A), after considering the judgments of the cases Holcim India Pvt. Ltd, Cheminvest Ltd., and Investment Pvt. Ltd Vs. CIT, thereby granted relief to the assessee with regard to the aforesaid Suo moto disallowance made by the Revenue, thus leaving the Revenue to prefer the instant appeal before the Delhi ITAT.

Hearing the opposing contentions of either side as presented by Sh. Akshat Jain, CA, on behalf of the assessee, and by Sh. Kanv Bali, the Sr. DR, on behalf of the Revenue, the ITAT Panel consisting of C. M. Garg, the Judicial Member, along with Dr B. R. R. Kumar, the Accountant Member, held:

“The fact that the exempt income received by the assessee of Rs. 2,093 (Rupees Two thousand and ninety-three only) has not been in dispute. The disallowance, in any case, cannot be more than the exempt income earned. The state cannot clutch the undue benefit of the mistake committed by the taxpayer. Hence, we decline to interfere with the order of the ld CIT(A). In a result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 14/02/2023.”

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