2021 (5) TMI 717 - AT - Income Tax

Disallowance u/s 14A of notional expenditure - AR submitted before us that the Ld. CIT (A) has not decided the issue with respect to addition made invoking the provisions of section 14A of the Act while computing taxable income under the normal provisions of the Act - also the issue in the assessment order U/s. 154 of the Act was with respect to the addition made invoking the provision of section 14A of the Act while computing the taxable income U/s. 115JB of the Act and hence, not related to the issue which was before the Ld. CIT (A) - HELD THAT - With respect to the arguments advanced by the ld. AR dismissing the appeal of the assessee by the ld. CIT (A) by treating the appeal to be infructuous, we find merit in the same. The issue in the appeal against the order U/s. 154 of the Act was with respect to invoking the provisions of section 14A of the Act by computing the taxable income of the assessee U/s. 115JB of the Act. Therefore, we do not find it to be of any relevance with respect to the issue raised in the appeal before the Ld. CIT (A) which is on invoking the provisions of section 14A of the Act while computing the taxable income under the normal provisions of the Act. Hence, it is evident that the Ld. CIT (A) has not addressed the ground raised in the appeal. However as per on an earlier occasion on the identical issue of invoking the provisions of section 14A of the Act while computing the taxable income under the normal provisions of the Act, we hereby remit the matter back to the file of the ld. AO to verify whether the assessee had made the entire investment in its sister-concerns out of its non-interest-bearing funds and if found so, delete the addition made invoking the provisions of section 14A of the Act and if found otherwise, pass appropriate order in accordance with law and merit. Accordingly, both the relevant grounds raised in the appeal are disposed off.

Summary

Issues:
1. Disallowance of notional expenditure under section 14A of the Act.
2. Treatment of appeal as infructuous by Ld. CIT (A).
3. Invocation of section 14A of the Act for computing taxable income.

Analysis:
1. The appeal was filed against the order of Ld. CIT (A) disallowing notional expenditure of ?57,26,865 under section 14A of the Act. The assessee argued that the investment in its sister company was made from non-interest-bearing funds, thus no expenses were incurred. The Ld. CIT (A) dismissed the appeal as infructuous due to a separate appeal filed under section 154 of the Act. The Tribunal found that the issue in the appeal under section 154 was different from the one before Ld. CIT (A). The Tribunal held that Ld. CIT (A) did not address the ground raised in the appeal, leading to the matter being remitted back to the AO for verification.

2. The Tribunal referred to a previous decision on a similar issue where it was established that only certain categories of expenditure are attributable to investments in equity shares. Since the assessee invested in its subsidiary company using non-interest-bearing funds, no interest cost or direct/indirect expenses were applicable. The Tribunal remitted the matter back to the AO to verify the source of investment and directed to delete the addition made under section 14A if found to be from non-interest-bearing funds.

3. The Tribunal allowed the appeal for statistical purposes and remitted the matter back to the AO for further verification. The decision was pronounced on 9th April 2021, providing detailed reasoning for the disposal of the relevant grounds raised in the appeal. The Tribunal emphasized the factual aspect of the case and the specific provisions of the Act to guide the assessment process accurately.