2019 (9) TMI 1071 - AT - Income Tax

Penalty u/s 271(1)(c) - issue set aside by the Tribunal in quantum appeal - HELD THAT - Order of Tribunal in quantum appeal, which was set aside to the AO, directed the AO to withdraw the penalty imposed u/s.271(1)(c) of the Act on the grounds that when the assessment order is set aside to AO, the penalty order has no legs to stand and has to be restored to AO. The order of CIT(A) is very reasoned and as per law as the penalty cannot survive when the issue is set aside by the Tribunal in quantum appeal. Disallowance u/s.14A r.w.Rule 8D(ii) and disallowance u/s.14A r.w.Rule 8D(iii) - HELD THAT - CIT(A) has rightly relied on the decision in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has held that in case the interest free funds available with the assessee are more than the investments in the securities yielding exempt income then the presumption has to be drawn that investments are made out from interest free funds and not out of interest bearing funds. Similarly, on the issue of disallowance under rule 8D(2)(iii), the CIT(A) rightly observed that the disallowance cannot exceed the expenses incurred by the assessee. Hence, we uphold the order of Ld.CIT(A) in this regard. Disallowance u/s.36(1)(iii) - DR submitted that the assessee has failed to submit any documentary evidences and explanation of interest paid on these advances to - admission of additional evidence. - HELD THAT - The issue raised by the Revenue that the CIT(A) has no power to set aside the matter to the AO for verification and allowing the same is not as per law and the CIT(A) has no such power to aside the issue to the file of AO. Besides the contention of Ld.DR was that the CIT(A) has admitted the additional evidence in the form of analysis of inflow and outflow of funds and interest thereon. The Ld.CIT(A) allowed relief to the tune of ₹ 18,40,03,334/- on the basis of said analysis. So far as the question of admitting the additional evidence is concerned, we do not find any merit in the contentions of the Revenue as the CIT(A) has only considered the analysis of the inflow and outflow of the funds which was also filed by the assessee before the AO. Therefore, on this count, the ground raised by the Revenue does not succeed. We are of the view that the assessee has shown clearly that funds were given out of the commercial expediency and, therefore, we do not see any good reason to deviate from the findings of the CIT(A) in this regard. Accordingly, we dismiss this ground of appeal of Revenue.

Summary

Issues:
1. Appeal against the order of Commissioner of Income Tax(Appeals)-10, Mumbai for AYs.2009-10 and 2012-13.
2. Challenge against the penalty imposed under section 271(1)(c) of the Act.
3. Disallowance of expenses under section 14A r.w.Rule 8D(ii) and 8D(iii).
4. Disallowance under section 36(1)(iii) of the Act.

Analysis:

Issue 1:
The Revenue appealed against the Commissioner of Income Tax(Appeals) order for AYs.2009-10 and 2012-13. The first issue raised was the penalty imposed under section 271(1)(c) of the Act.

Issue 2:
In the case of AY.2009-10, the Revenue challenged the order of Ld.CIT(A) directing the AO to withdraw the penalty levied on the issue of concealment of income u/s 271(1)(c) of the Act. The Tribunal upheld the order of Ld.CIT(A) as the penalty cannot survive when the issue is set aside by the Tribunal in quantum appeal. The Cross-Objection filed by the assessee was rendered infructuous and dismissed accordingly.

Issue 3:
Regarding AY.2012-13, the Revenue contested the disallowance of expenses under section 14A r.w.Rule 8D(ii) and 8D(iii). The AO observed exempt income received without attributing any expenses and applied rule 8D(2)(iii) leading to a disallowance. The Ld.CIT(A) restricted the disallowance under rule 8D(2)(iii) to actual expenses incurred, citing the presumption of investments made out of interest-free funds. The Tribunal upheld the Ld.CIT(A) order in this regard.

Issue 4:
The final issue was the disallowance under section 36(1)(iii) of the Act for AY.2012-13. The AO disallowed a portion of interest expenses as the interest income was lower, alleging diversion of funds for non-business purposes. The Ld.CIT(A) directed the AO to adopt a specific working for disallowance under section 36(1)(iii), which was challenged by the Revenue. The Tribunal held that the CIT(A) had the power to set aside the matter to the AO for verification and that no additional evidence was admitted. The ground raised by the Revenue was dismissed, and the appeal was ultimately dismissed.

In conclusion, the Tribunal dismissed both appeals of the Revenue along with the Cross-Objection of the assessee in the cited judgment.