2016 (8) TMI 1425 - AT - Income Tax

Admission of additional evidence by CIT- A in deleting addition - Not giving proper opportunity of verification to AO thus violating the provision of Rule 46A(3) of the Income Tax Rules 1962 - Disallowance of interest expenses on OD facilities and Disallowance u/s 14A - HELD THAT - Department should be given proper opportunity to take into consideration the additional evidences for verification. After hearing both sides we in the interest of justice and equity remand the issues raised in the Ground No. 1 and 2 of the Revenue to the file of the ld. CIT(A) to decide afresh after giving adequate opportunity of being heard to both the parties. Hence the appeal of the Revenue is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of interest expenses on OD facilities
2. Disallowance u/s 14A of the I.T. Act, 1961
3. Admitting additional evidences without proper verification violating Rule 46A(3)

Analysis:

Issue 1: Disallowance of interest expenses on OD facilities
The Revenue appealed against the order of the ld. CIT(A) regarding the addition of ?66,26,803 made by the AO on account of disallowance of interest expenses on OD facilities for the assessment year 2010-11. The ld. CIT(A) deleted the addition after considering the submissions and assessment order. It was found that the AO's assumption was incorrect, as the interest debited was only ?77,733, and the interest-bearing O/D funds were not utilized for tax-free income. The ld. CIT(A) concluded that the AO's disallowance lacked basis and was unjustified, granting relief to the assessee.

Issue 2: Disallowance u/s 14A of the I.T. Act, 1961
The Revenue also contested the deletion of disallowance of ?1,62,04,699 made by the AO under section 14A of the I.T. Act, 1961. The ld. CIT(A) found that the AO invoked Rule 8D based on presumption without specific facts on expenditure for earning exempt income. It was noted that the AO did not provide evidence to justify the disallowance under Rule 8D. The ld. CIT(A) concluded that the disallowance made by the AO was unjustified, as the appellant's investment was from its own funds, and there were no specific findings in the assessment order to sustain the disallowance. Relief of ?1,62,04,699 was granted to the assessee.

Issue 3: Admitting additional evidences without proper verification violating Rule 46A(3)
The Revenue raised concerns about the ld. CIT(A) admitting additional evidences without giving the AO an opportunity for verification, violating Rule 46A(3) of the Income Tax Rules, 1962. The Tribunal remanded the issues to the ld. CIT(A) for a fresh decision, emphasizing the importance of providing both parties with adequate opportunity to be heard. The appeal of the Revenue was allowed for statistical purposes.

In conclusion, the judgment addressed the issues of disallowance of interest expenses on OD facilities, disallowance under section 14A of the I.T. Act, 1961, and the admission of additional evidences without proper verification. The decision provided detailed reasoning for each issue and emphasized the importance of procedural fairness and opportunity for both parties to present their case.