2018 (7) TMI 1916 - AT - Income Tax

Disallowance u/s.14A read with Rule 8D - disallowance to the exempt income which formed part of the total income of the assessee - HELD THAT - We find the case of the assessee is covered by virtue of the decision of Pune Bench of the Tribunal in the case of Rajmal Lakhichand 2018 (4) TMI 861 - ITAT PUNE . The said ratio of the Tribunal is relevant to the facts of the present case for the proposition that where the assessee had not received any tax free income during assessment year under appeal, no disallowance u/s.14A read with Rule 8D was called for - the matter should be remanded to the file of CIT(A) for deciding the applicability of relevant law and restrict the disallowance to the exempt income which formed part of the total income of the assessee. Accordingly, the Ground No.2 raised by the assessee is allowed protanto. Claim of expenditure for the year under consideration but accounted for in the subsequent years - prior period expenses accounted in the subsequent years - HELD THAT - CIT(A) has rightly applied the ratio laid down in the case of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT . Therefore, we are of the view that this issue should be remanded to file of AO. AO is directed to examine the details furnished by the assessee at page 4 of the paper book regarding the genuineness of expenditure and the reasons for not receiving the bills in time, and not including the expenses in the returns of income for the A.Yrs. 2010-11 and 2011-12, as the case may be. Ground No.1 raised by the Revenue is allowed for statistical purposes. Addition on account of sale of scrap - understatement of sales - rates of scrap per Metric Tonne shown by the assessee - HELD THAT - As perused the Metallurgical Guidelines issues by the Ministry of Mines in the Indian Minerals Yearbook, 2011 where the melting scrap for the year 2009-10 is indicated as 19133 per tonne. Considering the same, the rates of scrap per Metric Tonne shown by the assessee are within the prescribed limits. We hold that assessee has not understated the sale of scrap in any manner and AO failed to establish with cogent evidences. AO only proceeded to make addition on surmises and conjectures. Therefore, we uphold the order of CIT(A) deleting the addition on this issue. Accordingly, the Ground No.2 raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of Amortization of lease charges.
2. Disallowance under Section 14A of the Income Tax Act.
3. Claim of expenditure pertaining to the year under consideration but accounted for in subsequent years.
4. Deletion of addition on account of underestimated sale of scrap.

Issue-Wise Detailed Analysis:

1. Disallowance of Amortization of Lease Charges:
- The assessee raised the issue of disallowance of amortization of lease charges amounting to ?4,29,835/-. However, the counsel for the assessee did not press this issue. Consequently, the ground was dismissed as ‘not pressed’.

2. Disallowance under Section 14A of the Income Tax Act:
- The assessee challenged the disallowance of expenditure of ?1,33,82,121/- under Section 14A by applying Rule 8D without establishing any nexus between the exempt income and the expenditure related to such income.
- The assessee argued that only investments yielding exempt income should be considered for disallowance calculation under Rule 8D. The assessee had made a suo moto disallowance of ?20,999/- and claimed that the exempt income was only ?6,94,375/-, but the AO disallowed ?1.34 crore.
- The Tribunal found that the case was covered by the decision in Rajmal Lakhichand Vs. JCIT, which stated that disallowance under Section 14A read with Rule 8D should not exceed the exempt income earned by the assessee.
- The Tribunal remanded the matter to the CIT(A) to restrict the disallowance to the exempt income forming part of the total income of the assessee.

3. Claim of Expenditure Pertaining to the Year Under Consideration but Accounted for in Subsequent Years:
- The issue involved the assessee's claim of ?55,97,541/- as expenditure for the year under consideration but accounted for in subsequent years. The AO denied the claim based on the Supreme Court judgment in Goetz India Ltd. Vs. CIT.
- The CIT(A) allowed the claim, referencing the Bombay High Court decision in Pruthvi Brokers and Shareholders Pvt. Ltd., which permits appellate authorities to entertain such claims.
- The Tribunal remanded the issue to the AO to examine the genuineness of the expenditure and ensure that these expenses were not claimed in the returns for subsequent years.

4. Deletion of Addition on Account of Underestimated Sale of Scrap:
- The AO added ?2,22,45,680/- to the assessee's income, alleging understatement of scrap sales. The CIT(A) deleted the addition, finding fault with the AO's calculation method and reasoning.
- The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's addition was based on conjectures and surmises without proper evidence. The Tribunal found that the assessee's scrap sale rates were within the prescribed limits and supported by comparative quotes from various scrap dealers.

Conclusion:
- The appeals of the assessee were partly allowed.
- The appeals of the Revenue were partly allowed for statistical purposes.
- The Tribunal remanded specific issues to the AO and CIT(A) for further examination and appropriate action.