2017 (4) TMI 958 - AT - Income Tax

Disallowance u/s 14A - Held that - Ground should be restored to the file of AO, as he has not examined the disallowance u/s 14A of the Income Tax Act, 1961 (Act) with respect to share of profit received by the assessee from partnership firms which are also not includible in the total income liable to tax of the assessee. The ld. DR has rightly relied on the judgement of ITAT Ahmedabad Bench in the case of Vishnu Anant Mahajan vs ACIT (2012 (6) TMI 297 - ITAT, Ahmedabad) Deemed dividend addition u/s 2(22)(e) - assessee pledged his properties to the bank by way of equitable mortgage and also stood as a guarantor for the credit facilities taken by the company - Held that - The proposition laid down in Pradip Kumar Malhotra Versus Commissioner of Income-tax, West Bengal-V 2011 (8) TMI 16 - CALCUTTA HIGH COURT that transactions, whether the assessee has permitted his property to be mortgaged to the bank, for the company to take certain benefit by way of loan and when certain facilities granted by such company in lieu of such mortgage and in lieu of the same, the company grants some interest free advance to the assessee, such transaction is not a gratuitous transaction. This principle is fulfilled in the case on hand. Thus respectfully following the same we allow this ground of the assessee as the amount advanced by the company to the assessee is not a gratuitous transaction. - Decided in favour of assessee. Disallowance of interest paid - Held that - The claim of the assessee has to be examined with the help of a cash flow statement. The assessee should demonstrate whether interest bearing funds have gone into taxable income earning activities. It is for the assessee to demonstrate that interest fee funds have been utilised for personal purposes. The issue has to be examined holistically. This has not been done. Hence we set aside these grounds to the file of AO for fresh adjudication - Decided in favour of assessee for Statistical purpose.

Summary

Issues involved:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Addition under section 2(22)(e) of the Income Tax Act, 1961
3. Disallowance of interest on loans not for the purpose of business
4. Confirmation of estimated income of House Property

Analysis:

1. Disallowance under section 14A of the Income Tax Act, 1961:
The Appellate Tribunal found that the Assessing Officer (AO) did not examine the disallowance under section 14A concerning the share of profit received by the assessee from partnership firms not included in the total income. The Tribunal referred to the judgment of ITAT Ahmedabad Bench in a similar case. Consequently, the Tribunal allowed this ground for statistical purposes and directed the issue to be reconsidered by the AO.

2. Addition under section 2(22)(e) of the Income Tax Act, 1961:
The Tribunal considered the argument regarding the deemed dividend income under section 2(22)(e). The assessee's counsel relied on a decision of the Jurisdictional High Court and presented a case where the company provided interest-free funds to the assessee against his properties pledged as collateral. The Tribunal analyzed the High Court's ruling and concluded that the advance given to the assessee was not deemed dividend as it was not gratuitous but to protect the business interest of the company. Consequently, the Tribunal allowed this ground in favor of the assessee.

3. Disallowance of interest on loans not for the purpose of business:
Regarding the disallowance of interest paid, the Tribunal emphasized the need for a comprehensive examination by the assessee with a cash flow statement to demonstrate the utilization of interest-bearing funds for taxable income earning activities. The Tribunal noted that the issue had not been holistically examined and, therefore, set aside these grounds for fresh adjudication by the AO, allowing this ground for statistical purposes.

4. Confirmation of estimated income of House Property:
The Tribunal did not provide specific details on this issue in the judgment, suggesting that it might have been straightforward or not contested extensively during the proceedings.

In conclusion, the appeal of the assessee was allowed in part, with specific grounds being allowed for statistical purposes and directed for fresh adjudication. The Tribunal's decision was pronounced in open court on 12.04.2017.