2018 (6) TMI 1458 - AT - Income Tax

Disallowance u/s 14A read with rule 8D - Held that - Disallowance u/s 14A in this case cannot exceed than the tax exempt income as earned by the assessee during the year. So far as the contention that the assessee itself has offered disallowance in the return of income more than the exempt income earned is concerned, we note that the said issue has also been dealt with the Coordinate Bench, that is, even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is over assessed and direct the lower authorities to tax the assessee as per the provisions of law - we uphold the contention of the assessee and direct the AO to restrict the disallowance under section 14A read with rule 8D to ₹ 40,068/-. Addition as business income on account of unreconciled AIR transactions (26AS) - Held that - The assessee has produced the reconciliation before the CIT(A) by providing party-wise details and confirmations of transactions and the TDS deducted wrongly in respect of some transactions, but the ld.CIT(A) has not admitted these additional evidences nor sent them to the Assessing Officer for his examination. CIT(A) ought to take remand report on these additional evidences and adjudicate the issue in accordance with law, but CIT(A) neither examined himself nor he sent them to the Assessing Officer for his examination - set-aside to the file of the assessing officer. Denial of set off of brought forward business losses of the earlier assessment years - Held that - We note that the CIT(A) has not given instruction to the AO to examine the set off of brought forward losses as per the provisions of the Act. Assessee is entitled to claim the benefit of carry forward of losses, therefore, we think it appropriate to direct the Assessing Officer to examine the claim of the assessee with regard to carry forward of business losses in accordance with law. This ground of appeal raised by the assessee is allowed for statistical purposes.

Issues Involved:

1. Disallowance under section 14A read with rule 8D of the Income Tax Rules, 1962.
2. Addition of ?26,33,944/- as business income on account of unreconciled AIR transactions (26AS).
3. Denial of set off of brought forward business losses of earlier assessment years.

Detailed Analysis:

1. Disallowance Under Section 14A Read with Rule 8D:

The assessee challenged the disallowance of ?33,54,498/- under section 14A read with rule 8D. The Assessing Officer (AO) observed that the assessee had substantial investments in shares, yielding exempt dividend income. The assessee had suo-moto disallowed ?2,64,000/- under section 14A, attributing it to the salary of an employee managing investments. However, the AO noted additional administrative expenses and made further disallowance under rule 8D(2)(ii) & (iii), totaling ?36,18,498/-. After accounting for the assessee's suo-moto disallowance, the AO added ?33,54,498/- to the total income.

The CIT(A) upheld the AO's decision, noting that the assessee failed to rebut the AO's calculations. The assessee argued that the disallowance should be limited to the total exempt income of ?40,068/-, citing the Tribunal's decision in Tata Industries Ltd. vs. ITO, which held that disallowance under section 14A cannot exceed the exempt income earned.

The Tribunal agreed with the assessee, emphasizing that the disallowance should not exceed the exempt income. It directed the AO to restrict the disallowance under section 14A read with rule 8D to ?40,068/-.

2. Addition of ?26,33,944/- as Business Income on Account of Unreconciled AIR Transactions:

The AO added ?26,33,944/- to the assessee's income due to discrepancies between the income reported in the financials and AIR/26AS transactions. The assessee claimed that the discrepancies were due to incorrect PAN application by certain parties, but failed to provide reconciliation and rectified TDS returns.

The CIT(A) rejected the additional evidence provided by the assessee, stating that the assessee did not request its admission under Rule 46A nor explained why it was not submitted earlier.

The Tribunal noted that the assessee provided confirmations from the concerned parties rectifying the TDS errors. The CIT(A) should have admitted these additional evidences or sent them to the AO for verification. The Tribunal set aside the CIT(A)'s order and directed the AO to examine the TDS confirmations and reconciliations and adjudicate the issue accordingly.

3. Denial of Set Off of Brought Forward Business Losses:

The AO denied the set-off of brought forward losses amounting to ?55,97,291/- from various assessment years, noting discrepancies between the returned and assessed losses. The AO allowed set-off only for the assessed losses, disallowing ?53,74,052/-.

The CIT(A) upheld the AO's decision, noting that the assessee failed to rebut the AO's findings.

The Tribunal directed the AO to examine the assessee's claim for set-off of brought forward losses in accordance with the law, emphasizing the assessee's entitlement to carry forward losses as per the provisions of the Act.

Conclusion:

The appeal was partly allowed. The Tribunal restricted the disallowance under section 14A to ?40,068/-, directed the AO to examine the TDS confirmations and reconciliations for the unreconciled AIR transactions, and instructed the AO to re-examine the set-off of brought forward losses in accordance with the law.

← Previous Next →