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2021 (10) TMI 548 - AT - Income TaxDisallowance u/s.14A read with Rule 8D - assessee had not produced any documentary evidences to demonstrate that the investments were not related to earning exempt income - HELD THAT - CIT(A) shows that while allowing complete relief to the assessee on the issue of disallowance U/s. 14A CIT(A) has completely ignored the observations of the AO that the total turnover of the mutual fund was ₹ 101/- Crores and that the major expenditure relating the turnover were audit expenses as the auditor of the company had audited all the transaction expenses relating to turnover. AO had also pointed out incurrence of banking charges for the banking transactions and also incurrence of rental expense, personnel cost, depreciation, communication cost etc - CIT(A) did not consider these observations of the Assessing Officer as being relevant while allowing entire relief to the assessee company. A perusal of the impugned order also shows that the CIT(A) did not refer to any documentary evidences submitted by the assessee in this regard which the assessee would have relied upon to refute the observations of the AO. There is also no bifurcation of income earned as tax free income and taxable income. Apparently CIT(A) has accepted the contention of the assessee without giving a proper and thoughtful consideration to the issue before him. In such circumstance, we have no option but to direct the Ld. CIT(A) to re-examine the issue before him and adjudicate the same after giving proper opportunity to the assessee to present its case. Appeal of the Department stands allowed for statistical purposes.
Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. 2. Non-compliance by the assessee/respondent in appearing before the Tribunal. Issue-wise Detailed Analysis: 1. Deletion of Disallowance under Section 14A read with Rule 8D: The Revenue challenged the deletion of disallowance made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) had initially disallowed ?2,76,36,280/- on the grounds that the assessee did not produce specific documents to demonstrate that the investments were not related to earning exempt income. The AO argued that the assessee incurred various expenses such as rental, personnel cost, depreciation, and communication cost, which were directly related to the volume of transactions, including those generating tax-free income. The CIT(A) deleted the disallowance, stating that the AO did not provide an objective analysis and relied on presumptions regarding possible common expenses. The CIT(A) emphasized that the legislative intent of Section 14A is to disallow only such expenses which are relatable to tax-exempt income and not on an ad hoc basis. The CIT(A) referred to several judicial precedents, including the Delhi High Court's decisions in Maxopp Investment Ltd. vs. CIT and Cheminvest Ltd. vs. CIT, to support the deletion of the disallowance. However, the Tribunal found that the CIT(A) ignored the AO's observations regarding the expenses related to the turnover of mutual funds and other costs incurred by the assessee. The Tribunal noted that the CIT(A) did not consider these observations as relevant and failed to refer to any documentary evidence submitted by the assessee. Consequently, the Tribunal directed the CIT(A) to re-examine the issue and adjudicate it after giving the assessee a proper opportunity to present its case. 2. Non-compliance by the Assessee/Respondent: The Tribunal noted that the assessee/respondent did not appear for the hearing on multiple occasions, including 27.11.2019, 28.12.2020, 08.03.2021, and 14.07.2021. Despite the notices being duly dispatched to the assessee's address, there was continued non-compliance. Consequently, the Tribunal decided to hear the appeal ex-parte qua the assessee/respondent due to the persistent non-compliance. Conclusion: The Tribunal allowed the appeal of the Department for statistical purposes, directing the CIT(A) to re-examine the issue of disallowance under Section 14A read with Rule 8D and adjudicate it after providing the assessee a proper opportunity to present its case. The Tribunal emphasized the need for a proper and thoughtful consideration of the issue, taking into account the AO's observations and any documentary evidence submitted by the assessee. The order was pronounced on 30th September, 2021.
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