Assistant Commissioner Of Income Tax vs. Madhava Holdings Private Limited - (Income Tax Appellate Tribunal) (17 Aug 2023)

Errors cannot be perpetuated on the name of consistency

MANU/IH/0192/2023

Direct Taxation

Aggrieved by the order passed by the learned Commissioner of Income Tax(Appeals), ("CIT(A)") in the case of Mandava Holdings Private Limited ("the assessee") for the assessment year 2018-19, Revenue preferred present appeal.

Only issue involved in present case is whether any disallowance under Section 14A of the Income Tax Act, 1961 (IT Act) read with rule 8D of the Income Tax Rules, 1962 could be made, if the assessee had not earned any exempt income during the year under consideration.

There is no dispute that the assessee is a non-banking finance company, making investment in the group companies to meet their business requirements. In such a situation, it is beyond doubt that whenever the investee company declares dividend, such dividend would invariably be earned by the assessee and the assessee alone. It is not a case where only by chance the shares would be in the hands of the assessee when such a dividend is declared. If the assessee holds these shares as stock-in-trade, to be liquidated whenever the share price goes up in order to earn profits, then it would be possible that during such holding, the investee company may declare dividend.

It is, therefore, clear that the purpose of assessee holding the shares is not to liquidate when the share price goes up and thereby to earn profit, but the assessee holds such shares in the group companies to meet the business requirements of such companies. Assessee is bound to receive the dividend when it is declared.

Further, it is the settled principle of law, as observed by the Apex Court in the case of Distributors (Baroda) (P.) Ltd. vs. Union of India that there is no heroism to perpetuate an error and to rectify such an error is a compulsion of the judicial conscious. Errors cannot be perpetuated on the name of consistency. Impugned order is set aside. Appeal of the Revenue is allowed.

Tags : INCOME   ASSESSMENT   DISALLOWANCE  

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