2021 (8) TMI 952 - AT - Income Tax

Addition under suspense account - assessee contended before the Ld. CIT(A) that first of all he did not get proper opportunity before the AO to explain about the suspense account - HELD THAT - HELD THAT - We are of the opinion that in the peculiar facts of the case and taking into consideration the consistent practice adopted by the assessee and accepted by the department in earlier and subsequent years, the assessee's claim that it has offered for taxation in the subsequent assessment years the very same receipts it has shown in the suspense account to the tune of ₹ 16,50,203/- out of ₹ 19,04,784/- then the addition to that extent (₹ 16,50,203/-) would amount to double taxation of the same income, therefore, we set aside the impugned order and remand this issue back to the AO and direct that if the assessee has already offered for taxation in the subsequent assessment years out of this amount added by the AO in this relevant assessment year to the tune of ₹ 19,04,784/-, then addition of ₹ 16,50,203/- need to be deleted. Coming to the balance amountthe details of which are given in page 29 of the paper book, we note that these are receipts from FYs 2005-06 to 2010-11. This amount if the assessee has offered to tax in the subsequent assessment years then it should not be taxed and this also the AO need to consider afresh after verification and pass order in accordance to law. Disallowance u/s 14A r.w.r. 8D - HELD THAT - We note that the assessee has prepared separate income and expenditure account (personal) where dividend income which assessee claimed as exempt. According to Ld. AR, even though the portfolio management expenses of ₹ 39,18,761/- has been debited as expenses relating to portfolio management expenses, this expenses has not been claimed as deduction in the computation of total income which fact has not been verified by the AO or the Ld. CIT(A). According to Ld. AR, the assessee has incurred expenses of only ₹ 39,18,761/- for earning exempt income and the assessee has not claimed any deduction of the same in its revised computation of total income which is placed from pages 2 to 7 of the paper book. Therefore this issue need to be examined by AO afresh, for that we set aside the impugned order of Ld. CIT(A) and remand this issue back to AO with a direction to verify this fact and the AO to examine the claim of the assessee.AO has to examine the account of the assessee and if he is not satisfied with the correctness of the claim of the assessee, then he has to record the same and thereafter, only he can invoke rule 8D of the Rules. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Addition of ?19,04,784/- under the suspense account.
3. Addition of ?18,74,907/- under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1968.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:

The appeal was filed with a delay of 32 days. The tribunal, after reviewing the reasons stated in the petition for condoning the delay and hearing the Ld. DR, decided to condone the delay and proceeded to hear the appeal on its merits.

2. Addition of ?19,04,784/- under the Suspense Account:

The assessee, an individual owning a proprietary concern, had shown an amount of ?19,04,784/- under the head "suspense account" in the balance sheet. The AO added this amount to the total income of the assessee, reasoning that advances included a component of income and that the assessee was following a cash system of accounting without providing further details.

The assessee contended before the Ld. CIT(A) that he did not get a proper opportunity to explain the suspense account to the AO, who framed the assessment without awaiting the assessee's reply. The assessee provided evidence showing the details of the suspense account and claimed that ?16,50,203/- out of ?19,04,784/- was identified and offered to tax in subsequent years, leaving a balance of ?2,54,581/- still unidentified.

The tribunal noted that the assessee had been consistently following the practice of showing unidentified receipts in the suspense account and offering them to tax once identified. The tribunal directed the AO to verify if ?16,50,203/- was offered for taxation in subsequent years and, if so, to delete this amount from the addition to avoid double taxation. The AO was also directed to verify the balance amount of ?2,54,581/- and ensure it is not taxed if already offered in subsequent years.

3. Addition of ?18,74,907/- under Section 14A read with Rule 8D:

The AO noted that the assessee had shown exempt dividend income of ?2,13,68,176/- but had not disallowed any expenditure under section 14A. The AO disallowed ?18,74,907/- as per Rule 8D, which was confirmed by the Ld. CIT(A).

The assessee argued that he maintained separate accounts for exempt income and had not claimed any deduction for expenses incurred to earn this income. The tribunal observed that the AO and Ld. CIT(A) had not verified the assessee's claim that ?39,18,761/- incurred for earning exempt income was not claimed as a deduction. The tribunal remanded the issue back to the AO to verify the assessee's claim and, if not satisfied, to record reasons before invoking Rule 8D.

Conclusion:

The appeal was partly allowed for statistical purposes, with directions for fresh adjudication by the AO on both the suspense account and section 14A disallowance issues. The order was pronounced in the open court in August 2021.