2022 (3) TMI 966 - AT - Income Tax

Addition u/s.14A r/w. Rule 8D being 0.5% of the investment made in earning exempted income - main plea of the assessee before us is that the assessee has no exempt income, being so, there cannot be any disallowance u/s. 14A r/w. Rule 8D - HELD THAT - AO observed in his order that disallowance u/s.14A could be made even in a year in which no exempt income has been earned or received by the assessee. In our opinion, as decided in the case of PCIT v. Texport Overseas Pvt. Ltd. 2019 (12) TMI 1312 - KARNATAKA HIGH COURT disallowance u/s. 14A should be limited to the exempt income. Accordingly, we hold that where there is no exempt income, no disallowance could be made by the AO and direct the AO to disallow the expenditure to the exempt income only. If there is no exempt income, no disallowance should be made. Addition on account of amount deducted from profit which is the amount written back in the balance sheet out of BWSSB deposit collected from the flat owners and already offered to tax - contention of the Ld. AR is that this amount has been offered to tax in the AY 2012-13 - HELD THAT - AR drew our attention to the assessment order for AY 2012-13 dated 14.8.2014 and submitted that the unutilized deposits has been offered to tax for the AY 2012-13 and amount of ₹ 1.09 crores has been included in this amount and same cannot be treated as income for the current AY 2014-15. In our opinion, this requires verification at the end of AO whether the sum is considered as income on account of unutilized deposits in the AY 2012-13 and if it is actually included, the same cannot be taxed in the assessment year under consideration. Accordingly, the issue is remitted to the AO for fresh consideration. Deduction u/s. 80G - Claim denied on the reason that the assessee has not produced any documentary details of donation - assessee before us filed copies of donation receipts and pleaded that the issue may be remitted to the AO for fresh consideration - HELD THAT - In our opinion, these details were part of the books of account and produced before the AO which are not properly examined by him. Being so, in the interest of justice, we remit the entire issue to the file of AO for fresh consideration. He should take note of these donation receipts and decide the issue in accordance with law. Amount collected towards corpus fund - application of section 28(iv) or 41(1) - HELD THAT - In the present case, the amount collected towards corpus fund was lying with assessee and it is not perquisites in the hands of the assessee so as to apply the provisions of section 28(iv) of the Act. There is no cessation of liability and it is shown as outstanding liability in the books of account. Being so, the CIT(Appeals) rightly deleted the same. We do not find any infirmity in his order and the same is confirmed. The revenue's appeal is dismissed.

Summary

Issues:
1. Disallowance under section 14A r/w Rule 8D
2. Addition of amount deducted from profit
3. Non-granting deduction under section 80G

Issue 1: Disallowance under section 14A r/w Rule 8D:
The dispute revolved around the disallowance of expenses by the Assessing Officer (AO) under section 14A of the Income-tax Act, 1961, read with Rule 8D. The AO made a disallowance of ?58,026 as the appellant had not debited any expenses incurred on investments earning tax-free income. The appellant contended that no exempt income was earned during the year, challenging the addition of ?1,43,225 as expenses. The ITAT held that disallowance under section 14A should be limited to exempt income only, and if no exempt income is earned, no disallowance should be made. The ITAT directed the AO to disallow expenditure only to the exempt income.

Issue 2: Addition of amount deducted from profit:
The appellant contested the addition of ?1,09,00,000 as income for the assessment year 2014-15, which was previously offered to tax in the assessment year 2012-13. The ITAT noted discrepancies in the treatment of this amount and remitted the issue to the AO for further examination. The ITAT emphasized the need for verification regarding the inclusion of the amount in the previous assessment year before taxing it in the current year.

Issue 3: Non-granting deduction under section 80G:
The appellant claimed a deduction of ?5,79,500 under section 80G for donations made but was denied due to lack of documentary evidence. The ITAT found that the donation receipts were part of the books of account produced before the AO but not properly examined. Consequently, the ITAT remitted the issue to the AO for fresh consideration, directing a proper review of the donation receipts in accordance with the law.

In conclusion, the ITAT partially allowed the assessee's appeal concerning the disallowance under section 14A and remitted the issue of the addition of the deducted amount back to the AO for verification. The ITAT dismissed the revenue's appeal regarding the addition of the corpus fund under section 28, affirming the CIT(A)'s decision. The ITAT emphasized the importance of proper examination of evidence and adherence to legal provisions in tax assessments.