2020 (11) TMI 213 - AT - Income Tax

Accrual of income - Receipt of interest from the sundry debtors - Accrual of income - HELD THAT - In view of block assessment order dated 28.02.2007, various investments were added as undisclosed income and since the assessee has not redeemed those investments, the AO considered the interest on those investments as accrued income. By reiterating the submissions as made before the ld. CIT(A), assessee has contended that the assessee has not received any interest from the sundry debtors and the assessee follows cash system of accounting due to uncertainty in the line of business. We find force in the arguments of Department has not placed on record any evidence of receipt of interest from the sundry debtors, as the burden lies on the Department. However, the AO estimated the accrued interest and treated it as income and brought to tax. Respectfully following the above findings of the Tribunal, CIT(A) directed the AO to follow the directions given by the ITAT in the case of Smt. Renu Sarin, wife of the Kartha of the assessee 2019 (4) TMI 1054 - ITAT CHENNAI . We find no infirmity in the order passed by the ld. CIT(A). Accordingly, the common ground raised by the Revenue for both the assessment years stands dismissed. Disallowance u/s 14A - assessee has submitted that the assessee has not claimed any expenditure as deduction - HELD THAT - The assessee is an individual and it appears that she has made the investment based on her own decision without any external or internal aid and from her own interest free funds. In such situation no expenditure could be attributed for making such investment. Moreover there is nothing on record to suggest that the assessee have claimed any expenditure as deduction. When the assessee has not claimed any expenditure there could not have be any expenditure that is attributable towards earning exempt income. Therefore we are of the considered view that no disallowance can be made U/s. 14A of the Act or by invoking Rule 8D of the Rules in the case of the assessee. Hence we hereby direct the Ld. AO to delete the addition made in the hands of the assessee invoking the provisions of Section 14A. - Decided against revenue.

Summary

Issues:
1. Condonation of delay in filing appeals by Revenue.
2. Deletion of interest on debtors.
3. Deletion of disallowance of expenditure under section 14A of the Act.

Analysis:
1. The appeals filed by the Revenue were delayed by 6 days, and a petition for condonation of delay was filed. The delay was condoned as the Revenue showed sufficient cause, and both appeals were admitted for adjudication.

2. The first issue pertained to the deletion of interest on debtors. The Assessing Officer considered interest on certain investments as accrued income since they were not redeemed. The appellant contended that as per the cash system of accounting, no interest was received from debtors. Citing a similar case precedent, the Tribunal directed the deletion of the accrued interest addition, which was upheld by the CIT(A) and subsequently by the Tribunal.

3. The second issue involved the deletion of disallowance of expenditure under section 14A of the Act. The Assessing Officer disallowed expenditure to earn dividend income, which was contested by the appellant. The Tribunal, following precedent, ruled that since no expenditure was debited to the P&L account and the investment was made from interest-free funds, no disallowance could be made under section 14A. The CIT(A) upheld this decision, and the Tribunal found no infirmity in the order.

In conclusion, both appeals by the Revenue were dismissed by the Tribunal based on the above analysis and precedents cited.