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2018 (4) TMI 571 - AT - Income TaxAddition u/s 14A - Held that - Disallowance 14A cannot be made where there is no exempt income during the relevant A.Y. See case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT . Addition u/s 68 - Held that - CIT (A) has deleted the same by accepting the contentions of the assessee without any verification. We find that before us the assessee has not filed the copies of any of the documents which are referred in CIT (A) s order. We are not able to accept the contentions of the assessee about the creditworthiness and the genuineness of the transactions. The PAN of the companies only prove their existence, and nothing else which is required u/s 68 of the Act - remit this issue also to the file of the AO with a direction to reconsider the issue in the light of the evidence filed by the assessee in support of the investment made by the four companies in the assessee s company.
Issues:
Cross appeals by the assessee and the Revenue against the order of the CIT (A)-4, Hyderabad, dated 1.11.2016 involving disallowance under Rule 8D(2) of the I.T. Act, disallowance of professional consultancy fees, treatment of share capital as unexplained cash credit, and deletion of disallowance made u/s 14A and u/s 68 of the Act. Analysis: 1. Disallowance under Rule 8D(2) of the I.T. Act: The AO disallowed expenses debited to the P&L A/c under Rule 8D(2) based on investments in shares. The CIT (A) deleted the disallowance. The ITAT upheld the CIT (A)'s decision as no exempt income was earned during the relevant A.Y. Citing precedents, the ITAT concluded that disallowance under section 14A cannot be made without exempt income, thus dismissing the Revenue's appeal. 2. Disallowance of Professional Consultancy Fees: The AO disallowed professional consultancy fees paid to a specified person under section 40A(2)(b) as the necessity of charges and services rendered were not substantiated. The CIT (A) confirmed the disallowance. The ITAT remitted the issue to the AO for verification of the necessity and legitimacy of the payment, directing a re-examination in accordance with the law, allowing the assessee's appeal for statistical purposes. 3. Treatment of Share Capital as Unexplained Cash Credit: The AO treated an increase in share capital as unexplained cash credit, adding it to the assessee's income. The CIT (A) deleted the addition. The ITAT found no verification of the creditworthiness and genuineness of transactions. Relying on legal precedents, the ITAT remitted the issue to the AO for reconsideration based on evidence filed by the assessee, allowing the assessee's appeal for statistical purposes. 4. Deletion of Disallowance u/s 68 of the Act: The CIT (A) deleted the addition made u/s 68 without verification. The ITAT found lack of supporting documents and evidence. Referring to legal decisions, the ITAT remitted the issue to the AO for reevaluation in light of the evidence provided by the assessee. Ground of appeal no. 2 was allowed for statistical purposes. In conclusion, the ITAT partly allowed the Revenue's appeal and allowed the assessee's appeal for statistical purposes, remitting various issues back to the AO for further examination and verification in accordance with the law.
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