2018 (5) TMI 949 - AT - Income Tax

Disallowance u/s 14A - Held that - We find that the assessee is flooded with own funds which are much higher than the borrowings and the investments made by the assessee. CIT-A had given a categorical finding that the loans borrowed by the assessee were utilized only for business purposes of the assessee and no part of such borrowings were utilized for making investments. This factual finding remain uncontroverted by the revenue before us with reference to the books of accounts. No reason to interfere with the reasoning given for deletion of interest under second limb of Rule 8D(2) of the Rules by the CIT-A. With regard to disallowance of indirect expenses under third limb of Rule 8D(2) of the Rules, the CIT-A had only placed reliance on the co- ordinate bench decision of this tribunal in the case of REI Agro Ltd 2013 (9) TMI 156 - ITAT KOLKATA wherein it was held that only investments yielding exempt income should be considered for computing disallowance u/s 14A of the Act read with Rule 8D of the Rules. Unexplained Expenditure on the basis of fresh evidences without waiting for the remand report - Held that - In the instant case, the CIT-A had not merely accepted the version of the assessee. Instead, the ld CITA had thoroughly examined himself the entire reconciliation statements filed by the assessee before the AO which were completely ignored by the AO. We find that the CIT-A had even examined the statements with the supporting evidences that are available in the paper book of the assessee. We are not inclined to accept the grounds of the revenue that the CIT-A had erred in disposing off the appeal without waiting for the remand report. AR drew our attention to the various pages of the paper book that were relied upon by the CIT-A while passing the order on merits. On merits, the submissions made by the assessee before the ld CIT-A, the findings of the CIT-A and the submissions made by the ld AR before us, remain uncontroverted by the revenue before us. Hence we do not find any justifiable reason to interfere with the order of the ld CIT-A in this regard. Accordingly, the Grounds 2 & 3 raised by the revenue are dismissed.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Unexplained Expenditure under Section 69C of the Income Tax Act.
3. Deletion of addition made for undisclosed expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The first issue is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in granting relief to the assessee concerning the disallowance under Section 14A of the Income Tax Act. The Assessing Officer (AO) had observed that the assessee, a private limited company engaged in manufacturing and exporting garments, had earned tax-exempt dividend income but did not disallow any sum under Section 14A as expenditure incurred for earning such income. The AO computed the disallowance under Rule 8D(2) of the Income Tax Rules, totaling ?9,39,568/-. However, the CIT(A) noted that the average value of investments was ?459.38 lakhs, while the net owned funds were ?1841.89 lakhs. The CIT(A) concluded that the secured loans obtained by the assessee were for specific business purposes and not for making investments, thus deleting the disallowance under Rule 8D(2)(ii). The CIT(A) also directed the AO to re-compute the disallowance under Rule 8D(2)(iii) by considering only dividend-bearing investments. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had sufficient own funds and the AO’s factual findings were uncontroverted.

2. Unexplained Expenditure under Section 69C of the Income Tax Act:
The second issue concerns whether the CIT(A) was justified in granting relief of ?1,46,29,344/- under the head of unexplained expenditure on the basis of fresh evidence without waiting for the remand report. The AO had observed discrepancies in the expenses claimed by the assessee, particularly with M.A. Enterprises, Sofia Fashion, and Batra Associates, leading to an addition of ?1,46,29,344/- as unexplained expenditure. The CIT(A) noted that the assessee had provided detailed reconciliations and explanations, which the AO did not consider. The CIT(A) examined the materials and found that the AO’s conclusions were based on incorrect understandings of the ledger accounts. The CIT(A) deleted the addition, noting that the discrepancies were factually unsustainable.

3. Deletion of Addition Made for Undisclosed Expenses:
The third issue is whether the CIT(A) was justified in deleting the addition of ?94,45,995/- made by the AO as unexplained expenditure. The AO had noted discrepancies in the expenses claimed by the assessee with Pushp Creation and Ar Dee Textiles, leading to an addition of ?94,45,995/- as expenditure met from undisclosed sources. The CIT(A) observed that the assessee had provided reconciliations and explanations, which were not considered by the AO. The CIT(A) found that the differences were minimal and could arise from timing differences, thus deleting the addition. The Tribunal upheld the CIT(A)’s decision, noting that the reconciliations and explanations provided by the assessee were uncontroverted by the revenue.

Conclusion:
The Tribunal dismissed the revenue’s appeal, upholding the CIT(A)’s decisions on all grounds. The Tribunal noted that the CIT(A) had thoroughly examined the evidence and reconciliations provided by the assessee and that the AO had failed to provide a remand report despite multiple reminders. The Tribunal found no reason to interfere with the CIT(A)’s findings and decisions.