2018 (8) TMI 131 - AT - Income Tax

Addition made u/s. 14A r. w. r 8D - Held that - It is the duty of assessee to justify the source of investment mad by the assessee in the investment / PPF irrespective of fact that the own fund of assessee exceeds the impugned investment. We find that the issue of disallowance of interest will accordingly be decided after verifying the details whether the impugned investment was made by the assessee out of her own fund or borrowed fund. Thus, in the interest of justice and fair play we are inclined to restore the issue back to the file of AO with a direction to verify the source of investment made by the assessee in the impugned equity shares / PPF. In terms of above, this ground of Revenue s appeal is allowed for statistical purposes.

Summary

Issues:
Whether the CIT-A justified in deleting the addition made u/s. 14A r.w. r 8D of the IT Rules, 1962 without appreciating the decision of the Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons Vs. CIT.

Analysis:
The appeal by the Revenue was against the order passed by the CIT-A for the A.Y 2013-14. The main issue was whether the CIT-A was correct in deleting the addition made u/s. 14A r.w. r 8D of the IT Rules, 1962 without considering the decision of the Jurisdictional High Court. The AO found that the assessee invested in securities with income not taxable, earning dividends, interest, and LTCG. The AO made a disallowance u/s. 14A of the Act, which the CIT-A deleted based on case laws cited by the assessee. The Revenue argued that the CIT-A erred in deleting the addition without considering the High Court's decision. The assessee claimed the issue was covered by a previous order in her own case for A.Y 2011-12.

Regarding the addition under Rule 8D(2), the Tribunal remanded the matter to the AO to verify the source of investment in light of the High Court's decision in the case of Dhanuka & Sons. The Tribunal noted that the assessee must justify the source of investment even if her own funds exceeded the investment amount. The Tribunal directed the AO to verify whether the investment was made from the assessee's own funds or borrowed funds. The Tribunal allowed the Revenue's appeal for statistical purposes and restored the issue back to the AO for further verification.

In conclusion, the Tribunal found that the CIT-A's deletion of the addition u/s. 14A r.w. r 8D was not justified without considering the High Court's decision. The matter was remanded to the AO for verification of the source of investment, as per the direction of the Tribunal based on the High Court's judgment. The appeal filed by the Revenue was allowed for statistical purposes.