2014 (3) TMI 360 - AT - Income Tax

Addition on account of sum not disclosed as per the return - Disallowance u/s.14A of the Act r.w rule 8D of the Rules Investment in shares - Held that - The matter is principally factual - The disallowance is statutory, so that it would follow where the onus cast by law has not been discharged by the assessee, while no disallowance would arise where it has been - That is, the presumption in law as to incurring of expenditure under rule 8D(2)(iii)) would arise only where the onus had not been discharged by the assessee Relying upon CIT vs. Citicorp Finance (India) Ltd. 2006 (11) TMI 362 - ITAT MUMBAI thus, the matter remitted back to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
1. Addition of undisclosed income from tax-free bonds.
2. Disallowance under section 14A read with rule 8D of the Income Tax Rules.

Issue 1: Addition of undisclosed income from tax-free bonds:
The appeal concerned an addition of Rs. 4,04,445/- in the assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2009-10. The assessee claimed the income was from tax-free bonds and not disclosed in the return of income. The Assessing Officer initially considered the interest income not returned by the assessee at Rs. 5,12,216/-, including interest on a Public Provident Fund (PPF). The assessee demonstrated the tax-exempt nature of the income through ledger accounts and interest certificates. The Commissioner of Income Tax (Appeals) partly allowed the appeal, confirming the addition of Rs. 4,04,445/-. However, the tribunal disagreed with the Revenue's case, noting the clear disclosure of tax-free interest income and directed the deletion of the balance amount.

Issue 2: Disallowance under section 14A read with rule 8D of the Income Tax Rules:
The second issue involved a disallowance of Rs. 2,61,278/- under section 14A read with rule 8D of the Income Tax Rules related to investment in shares. The disallowance was based on administrative expenses at 0.5% of the average investment. The assessee, a Doctor, claimed no charges were incurred as professional expenses were the only ones reflected in the operating statement. The tribunal emphasized that section 14A applies only to expenditures related to tax-exempt income. The onus was on the assessee to show no expenditure was incurred, which the tribunal found unsatisfactory based on expenses incurred by the assessee. The tribunal referred to relevant court decisions and restored the matter to the first appellate authority for a detailed assessment based on factual considerations, emphasizing the need for a speaking order after hearing both parties.

In conclusion, the tribunal partly allowed the assessee's appeal, highlighting the importance of factual assessments and compliance with legal provisions in determining undisclosed income and disallowances related to tax-exempt investments.