2019 (6) TMI 785 - AT - Income Tax

Addition u/s 14A - assessee made suo-moto disallowance - HELD THAT - AO while making the disallowance has given a finding that investment in shares and securities have been made out of borrowed funds. It is the submission of the assessee that no borrowed funds have been utilized for making the investment and no new investments have been made during the year. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the files of the Assessing Officer with a direction to verify the records properly and decide the issue as per fact and law after giving a reasonable opportunity of being heard to the assessee.- Decided in favour of assessee for statistical purpose.

Summary

Issues:
Challenge to addition under section 14A of the Income Tax Act.

Analysis:
The appeal was filed against an order relating to the assessment year 2015-16. The main issue raised was the confirmation of an addition under section 14A of the Act by applying Rule 8D. The assessee argued that no expenses were incurred to earn tax-exempt income on old investments, and the addition should be deleted. The Assessing Officer noted investments in equity shares and disallowed expenses of ?31,780. However, he made a disallowance of ?1,35,696 under section 14A r/w Rule 8D. The CIT(A) upheld this action.

The assessee contended that no borrowed funds were used for investments in shares generating exempt income. The assessee voluntarily disallowed administrative expenses, and no further disallowance was warranted. Various decisions were cited in support of this argument. The Departmental Representative relied on the CIT(A)'s order.

After considering the arguments and cited decisions, the Tribunal found that the Assessing Officer computed a disallowance of ?1,67,476 under section 14A r/w Rule 8D. However, after deducting the voluntary disallowance by the assessee, the Assessing Officer added ?1,35,696 to the total income. The Tribunal noted the Assessing Officer's finding that investments were made from borrowed funds, which was disputed by the assessee. To ensure justice, the Tribunal directed the Assessing Officer to re-examine the issue, verify records, and decide after providing a reasonable opportunity to the assessee. The ground raised by the assessee was allowed for statistical purposes, and the appeal was allowed accordingly.

In conclusion, the Tribunal directed a re-examination of the issue regarding the addition under section 14A, emphasizing the need for proper verification and a fair opportunity for the assessee. The appeal was allowed for statistical purposes, providing relief to the assessee pending further assessment by the Assessing Officer.