2015 (4) TMI 1050 - AT - Income Tax

Disallowance of interest u/s.14A read with Rule 8D - Held that - No disallowance of interest is warranted. In case own funds are available with the assessee, it is presumed that investment has been made out of the own funds. It is also a matter of record that rule 8D Is not applicable for the relevant assessment year 2007-08 under consideration, however, reasonable disallowance is warranted as per verdict of Hon ble High Court in case of Godrej & Boyce Mfg. Co. (2010 (8) TMI 77 - BOMBAY HIGH COURT ). In the interest of justice and fairplay, we restore this issue back to the file of AO for deciding afresh after considering assessee s contention regarding interest free funds available to it more than the borrowed funds.- Decided in favour of assessee for statistical purposes. Addition as undisclosed professional receipts on the basis of Annual Information Return (AIR) - Held that - Assessee has offered much more professional receipts than the professional receipts shown in the AIR. Accordingly, we do not find any merit in the addition so made by the AO which may be due to different accounting system being followed by payer of such fees. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of payment to retired partners
2. Disallowance under section 14A
3. Alleged undisclosed professional receipts

Disallowance of payment to retired partners:
The appeal was filed against the order of CIT(A) regarding the disallowance of payment made to retired partners. The appellant contested that the sum paid to retired partners should be excluded in computing taxable income. The issue had been previously decided against the assessee, and an appeal was filed before the High Court. The assessee had filed a declaration under section 158A(1) of the ITAT, claiming a similar question of law pending before the High Court. The Tribunal directed the assessee to abide by the High Court's decision on this matter.

Disallowance under section 14A:
The appellant challenged the disallowance of interest expenses and other expenses under section 14A read with Rule 8D. The appellant argued that no satisfaction was recorded by the AO before invoking Section 14A. Additionally, it was contended that Rule 8D was not applicable for the assessment year 2007-08 based on a decision of the jurisdictional High Court. The AO had made a disallowance based on Rule 8D, but the appellant claimed that investments were made from own funds, not borrowed funds. The Tribunal found that while Rule 8D was not applicable for that assessment year, a reasonable disallowance was warranted. The issue was remanded back to the AO for fresh consideration after taking into account the appellant's contentions regarding the availability of interest-free funds.

Alleged undisclosed professional receipts:
The AO had added an amount as undisclosed professional receipts based on the Annual Information Return (AIR). The appellant argued that they had offered professional fees in the return of income much higher than the professional fees shown in the AIR. The difference in amounts was attributed to the appellant's cash-based accounting system. The Tribunal noted that the appellant had offered more professional receipts than shown in the AIR, and thus, found no merit in the AO's addition of undisclosed professional receipts. The appeal was allowed in part on this issue.

In conclusion, the Tribunal addressed the various grounds of appeal raised by the assessee, providing detailed analysis and reasoning for each issue. The decision was pronounced in favor of the assessee on certain aspects while directing further consideration by the AO on other matters.