2015 (11) TMI 1558 - AT - Income Tax

Disallowance u/s 14A - Held that - There is no justification for invoking of section 14A of the Act to disallow any expenditure on account of application of Rule 8D(2)(iii) of the Rules. There is no material on record to negate the factual assertions which have been made by the assessee consistently from the level of the Assessing Officer, which is to the effect that the investments made are in her personal capacity and are reflected in her personal account which are distinct from her business account. There is no finding by the lower authorities that any of the expenses found recorded in the business account was, in any manner, related to the earning of exempt income from such investments, which are obviously not part of the business account. As a consequence, set aside the order of the CIT(A) on this aspect and direct the Assessing Officer to delete the addition - Decided in favour of assessee. Addition of interest income - Held that - We deem it fit and proper to restore the matter back to the file of Assessing Officer for a decision afresh after allowing the assessee a reasonable opportunity of being heard in support of the amount of ₹ 17,526/- found in the AIR information. - Decided in favour of assessee by way of remand.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 143(3) read with section 153C of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Act in absence of incriminating material.
3. Addition of interest income based on AIR information.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The primary issue revolves around the jurisdiction of the Assessing Officer (AO) to make disallowances under section 143(3) read with section 153C of the Income Tax Act, 1961, particularly in the absence of any incriminating material found during the search. The Tribunal noted that the search and seizure action under section 132(1) was conducted on 16/12/2010, and the assessments were finalized under section 143(3) read with section 153C. The assessee argued that no incriminating material was found during the search to justify the disallowance made by the AO. The Tribunal admitted the Additional Ground of appeal, which questioned the jurisdiction of the AO based on the absence of incriminating material, citing judgments from the Hon'ble Supreme Court and the Hon'ble Bombay High Court.

2. Disallowance under Section 14A:
For Assessment Year 2008-09, the AO disallowed Rs. 56,912 under section 14A, asserting that the assessee had earned exempt income and had made investments in shares, bonds, and mutual funds. The Tribunal observed that the assessment was completed without any reference to incriminating material found during the search. The Tribunal referred to the judgments of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation and the Hon'ble Delhi High Court in the case of Kabul Chawla, which established that no addition could be made in respect of an assessment that had become final unless some incriminating material was found during the search. Consequently, the Tribunal directed the AO to delete the disallowance of Rs. 56,912, as it was beyond the scope of section 153A.

3. Addition of Interest Income:
For Assessment Year 2010-11, the AO added Rs. 17,526 as interest income based on AIR information, which was not disclosed in the return of income. The assessee contended that no details were provided regarding this addition, and requested the matter be remanded back to the AO for a fresh decision. The Tribunal accepted the plea and restored the matter to the AO for a fresh decision after allowing the assessee a reasonable opportunity to explain the amount.

Conclusion:
The Tribunal allowed the appeals for Assessment Years 2005-06, 2008-09, and 2009-10, holding that the disallowances under section 14A were unsustainable in the absence of incriminating material found during the search. For Assessment Year 2010-11, the Tribunal deleted the disallowance under section 14A and remanded the addition of interest income back to the AO for a fresh decision. The order was pronounced in the open court on 30/11/2015.