2016 (2) TMI 338 - AT - Income Tax

Disallowance U/s 14A - Held that - The assessee claimed that it has furnished evidence of interest free fund available with it before the Assessing Officer but whatever paper book filed, has not referred by the Assessing Officer. The representative of the assessee company has not signed on some of the papers allegedly claimed to be furnished before the Assessing Officer. The ld CIT(A) accepted the additional evidence without giving any finding of admitting the additional evidence in his order and seeking any comment from the Assessing Officer and passed the order by accepting the assessee s submission. Prima facie, these evidences were not available at the time of assessment with the Assessing Officer, therefore, in the interest of justice, we set aside the order of the ld CIT(A) and directed to give the opportunities to the Assessing Officer on evidence considered while deciding the assessee s appeal on disallowance of interest and disallowance on 14A. - Decided in favour of revenue for statistical purposes only.

Summary

Issues:
1. Disallowance under Section 14A of the IT Act, 1961
2. Disallowance of interest expenses on OD facilities
3. Admission of additional evidence without proper opportunity of verification

Analysis:

*Issue 1: Disallowance under Section 14A of the IT Act, 1961*
The Assessing Officer disallowed interest expenses and invoked Section 14A due to the assessee's investment in mutual funds from an OD account. The AO held that administrative expenses should be attributed to earning dividend income. The CIT(A) deleted the disallowance, noting the investment was made from interest-free funds. The Tribunal set aside the CIT(A)'s order, directing a fresh assessment, emphasizing the need for proper verification and opportunities for both parties.

*Issue 2: Disallowance of interest expenses on OD facilities*
The Assessing Officer disallowed interest expenses on overdraft funds used for investments, citing Section 36(1)(iii) of the Act. The CIT(A) deleted this disallowance, stating the AO's calculations were incorrect and the funds used were interest-free. The Tribunal set aside the CIT(A)'s decision for a fresh assessment, emphasizing the importance of proper verification and opportunities for both parties.

*Issue 3: Admission of additional evidence without proper opportunity of verification*
The CIT(A) admitted additional evidence without seeking comments from the Assessing Officer, leading to the Tribunal setting aside the CIT(A)'s order. The Tribunal directed a fresh assessment to allow reasonable opportunities for both parties before deciding on the disallowances under Section 14A and interest expenses, ensuring fairness and proper consideration of evidence.

In conclusion, the Tribunal allowed the revenue's appeal for statistical purposes only, emphasizing the importance of procedural fairness and proper verification in tax assessments. The case highlights the significance of providing opportunities for both parties to present evidence and make submissions before reaching a decision in tax matters.