2020 (4) TMI 705 - AT - Income Tax

Reopening of assessment - additional income as income from other sources and the provisions of section 69B of the Act were invoked - assessee accepting the strong possibility of the existence of direct nexus to bring that the said cash as a business income in the hands of the assessee and Serum group of company and if the assessee fails to demonstrate the same before the CIT(A) he is free to confirm the additions and prayed for remanding this issue to the file of the CIT(A) for fresh examination - HELD THAT - In the interests of justice, an opportunity should be granted to the assessee. Accordingly, I proceed to remand this issue, raised in ground no.2, to the file of the CIT(A) for fresh adjudication. The CIT(A) shall adjudicate the said issue afresh after entertaining the submissions and additional evidences of the assessee, if any, which is directly connected to this transaction of ₹ 38,25,000/- paid in connection with the transaction of purchase of land by Serum group of company. The CIT(A) shall also grant reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. Addition u/s 14A r.w.r. 8D - Computing of disallowance - computation of the average investments - HELD THAT - Considering the above submissions of the assessee, on one side and the order of the Tribunal in the case of Quick Heal Technologies Ltd. 2019 (3) TMI 699 - ITAT PUNE on the other, we find the issue now stands covered in favour of the assessee i.e. only the dividend yielded investments should be considered for computation of average investments.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Classification of income declared under Section 132(4) as "Income from Other Sources" versus "Profits and Gains from Business or Profession."

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The assessee contested the disallowance of ?1,07,993/- under Section 14A read with Rule 8D, arguing that the disallowance should be restricted to 0.50% of the average investment on which dividend income was received, computed at ?6,000/-. The assessee's argument was based on the fact that most investments did not yield exempt income by way of dividends during the year under consideration. The Tribunal referred to the written submissions and bifurcated the investments into categories, noting that out of the total investment of ?2,16,23,585/-, dividend was earned only on investments of ?12,00,000/-. The Tribunal relied on the decisions in ACIT vs. Vireet Investment (P) Ltd. and Quick Heal Technologies Ltd., which supported the proposition that only investments yielding exempt income should be considered for computing average investments. Consequently, the Tribunal allowed the alternate ground, directing that only dividend-yielding investments be considered for the computation, thus reducing the disallowance to ?6,000/-.

2. Classification of income declared under Section 132(4) as "Income from Other Sources" versus "Profits and Gains from Business or Profession":

The assessee declared an additional income of ?38,25,000/- as business income in the revised return, which was paid in cash for the purchase of land. The Assessing Officer, however, treated this amount as "income from other sources" under Section 69B, leading to the disallowance of brought forward business losses of ?10,24,521/-. The CIT(A) upheld this decision, citing judicial pronouncements that such surrendered income discovered during search actions should be taxed as deemed income under "income from other sources" and not be allowed set-off against business losses. The Tribunal noted the evidence of the cash payment and the land transaction but found no direct nexus proving the amount as business income. The Tribunal remanded the issue back to the CIT(A) for fresh adjudication, directing the CIT(A) to admit additional evidence and grant a reasonable opportunity of being heard to the assessee.

Conclusion:

The Tribunal partly allowed the appeal, remanding the issue of classification of the ?38,25,000/- income for fresh adjudication and allowing the ground related to disallowance under Section 14A, reducing it to ?6,000/- based on the investments yielding exempt income. The order emphasized the need for a fair opportunity for the assessee to present additional evidence and arguments.