2019 (2) TMI 1932 - AT - Income Tax

Addition u/s 40A(2)(b) - HELD THAT - We find it is a case of addition both on account of ad-hocism and on account of lack of comparable cases. Neither the Assessing Officer nor the CIT(A) gathered any comparable cases from the open market with similar line of business activity before holding the payments are excessive or unreasonable . In our considered opinion such ad-hocism is unacceptable and unsustainable. Therefore in our opinion grounds raised by the assessee should be allowed in full for want of Assessing Officer failures to discharge the onus. It is a settled legal proposition in matters of principles of provisions to section 40A(2)(b) Assessing Officer is under obligation to prove that the claims made by the assessee are unacceptable. This is a case where the assessee demonstrated the primary onus by furnishing the basic facts. Disallowance u/s 14A read with Rule 8D(2)(ii) - AO noted that the assessee earned exempt income by way of dividend and PPF interest - CIT(A) directed the Assessing Officer to delete the disallowances and rework the same - HELD THAT - We find the CIT(A) merely directed to the Assessing Officer to delete the addition and rework the disallowance. In our view the said direction is fair and reasonable and it does not call for any interference. It is not brought to our notice on the outcome of such direction before the Assessing Officer. Therefore the Assessing Officer is directed to take a view in this matter at the earliest after considering the existing law on this issue. We do not find any reason why the Assessing Officer should make any disallowance under clause (ii) of Rule 8D(2) of the Rules when the assessee is having adequate interest-free own funds like profits of the year and capital account balances etc. Accordingly the ground no.4 raised by the assessee is allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance u/s 40A(2)(b) of the Income Tax Act, 1961
2. Disallowance u/s 14A for exempted income
3. Disallowance of interest paid on unsecured loans

Analysis:

Issue 1: Disallowance u/s 40A(2)(b) of the Income Tax Act, 1961
The appeal was filed against the order of CIT(A)-6 for the Assessment Year 2012-13. The Assessing Officer disallowed a sum under section 40A(2)(b) of the Act, which was challenged by the assessee. The CIT(A) disallowed the entire claim under this provision without providing evidence of excessive or unreasonable payments. The Tribunal found the ad-hoc disallowance to be unacceptable and unsustainable due to the lack of comparable cases. The onus to prove unacceptability lies with the Assessing Officer, and since no evidence was presented, the grounds raised by the assessee were allowed.

Issue 2: Disallowance u/s 14A for exempted income
The Assessing Officer disallowed an amount under section 14A of the Act, which was partially allowed by the CIT(A). The Tribunal noted that the CIT(A) directed the Assessing Officer to delete the disallowances and rework the same regarding investments in PPF account. The Tribunal found the direction fair and reasonable, directing the Assessing Officer to reconsider the matter without making any disallowance under Rule 8D(2)(ii) of the Rules. The ground raised by the assessee was allowed for statistical purposes.

Issue 3: Disallowance of interest paid on unsecured loans
The ground related to disallowance of interest paid on unsecured loans was not pressed by the assessee during the hearing and was dismissed as not pressed. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal provided detailed analysis and reasoning for each issue raised by the assessee, ultimately allowing some grounds based on the lack of evidence and directing the Assessing Officer to reconsider certain aspects of the disallowances.