2015 (6) TMI 414 - AT - Income Tax

Disallowance u/s 14A r.w. rule 8D - Held that - In this case CIT(A) though upheld the applicability of Sec.14A of the Income tax Act, he has given direction to AO to look into the actual amount incurred for earning exempt income and recompute the same for the purpose of disallowance. Hence, the assessee s grievance on the findings of the CIT(A) is misconceived. We do not find any infirmity in the order of the CIT(A) and the same is confirmed. - Decided against assessee. Addition u/s 68 - unaccounted cash credit - CIT(A) deleted the addition - Held that - Genuineness of transaction cannot be said to have been proved by the confirmation letter filed by the assessee and thus, initial burden placed on the assessee is also not discharged. The finding of the CIT(A) that assessee has discharged the identity and capacity of the parties and genuineness of transaction is not borne out of records. In our opinion the judgment in the case of Orissa Corporation Pvt. Ltd. has no application because the facts in that case have a material effect with the credit worthiness and credibility of the creditors was not doubted in any manner. In this case inherent improbability to produce the creditor could be sufficient cause to reject the assessee s claim even if simple statement of account of creditors was filed by the assessee. Genuineness of credit cannot be accepted merely because identity is established and amount received by cheque. Being so, in our opinion it is appropriate to remit the entire issue to the file of AO, for fresh consideration, with the direction to assessee to discharge the burden cast upon it so as to prove the identity and capacity of the parties, and the genuineness of the transaction. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Disallowance of interest under section 14A of the Income Tax Act.
2. Addition of unexplained credit under section 68 of the Act.

Issue 1: Disallowance of Interest under Section 14A:

The case involved cross-appeals against the CIT(A)'s order for the assessment year 2008-09. The appellant contested the disallowance of interest amounting to Rs. 18,37,848 under section 14A of the Act. The AO disallowed the interest after the appellant earned exempt income and triggered the provisions of section 14A r.w. rule 8D. The CIT(A) upheld the applicability of section 14A but directed the AO to recompute the disallowance after verifying the actual amount incurred for earning exempt income. The appellant argued that the interest disallowed was higher than the actual interest paid, emphasizing that no interest was disallowed for the previous assessment year. The appellant also highlighted the source of funds for investments and the nature of borrowings. The Tribunal confirmed the CIT(A)'s order, rejecting the appellant's grievance and upholding the disallowance of interest under section 14A.

Issue 2: Addition of Unexplained Credit under Section 68:

In the Department's appeal, the revenue challenged the deletion of an addition of Rs. 1.25 crores received as an unsecured loan under section 68 of the Act. The appellant failed to provide adequate details regarding the source and creditworthiness of the lender, Doulos Finance Ltd. Despite submitting a confirmation letter, the AO treated the amount as unexplained credit. However, the CIT(A) found merit in the submissions made by the appellant, emphasizing the genuineness of the transaction and the lender's creditworthiness. The Tribunal noted discrepancies in the documents submitted by the appellant and the lack of proper verification of the lender's identity and capacity. While the CIT(A) deleted the addition, the Tribunal found that the initial burden of proof was not discharged by the appellant. Consequently, the issue was remitted back to the AO for fresh consideration to establish the identity, capacity, and genuineness of the transaction. The revenue appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the disallowance of interest under section 14A in the appellant's case and partially allowed the revenue's appeal regarding the addition of unexplained credit under section 68. The detailed analysis of each issue provided a comprehensive understanding of the legal judgment delivered by the Tribunal in this case.