2022 (11) TMI 429 - AT - Income Tax

Disallowance u/s 14A - sufficiency of own interest free funds - HELD THAT - From the details furnished it is clear that the interest free funds are undoubtedly more than the investments made by the assessee. In such circumstances the presumption shall be that the investments were made only from out of interest free funds and not from borrowed funds. Respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT we direct the Assessing Officer to delete the interest disallowance made under Rule 8D (2)(ii) of I.T. Rules. Incorrect computation of refund, adjustment of refunds granted while computing interest u/s. 244A - AR submitted that refund granted by the tax department has to be first adjusted against the interest and thereafter against the tax - HELD THAT - As gone through the details furnished by the assessee and find that there is merit in the submission of the Ld. counsel for the assessee. Therefore, in view of the submissions made we are of the view that this matter has to go back to file of the Assessing Officer for denovo consideration in the light of the decisions relied on by the assessee. Thus, we restore this issue to file of the Assessing Officer for denovo adjudication after providing adequate opportunity of being heard to the assessee. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purpose. Assessment Order on non-existent entity - HELD THAT - We observe that on similar circumstances in which State Bank of Bikaner and Jaipur merged with the SBI , the Coordinate Bench following the decision of the PCIT v. Maruti Suzuki India Ltd., 2019 (7) TMI 1449 - SUPREME COURT held that Assessment Order passed in the name of the erstwhile company is void ab-initio and quashed the same. DR has raised certain objections that (a) assessee has filed Form No. 35 in the erstwhile company name, we observe that the appeal cannot be filed before Learned Commissioner of Income Tax (Appeals) without following the Name/PAN mentioned in the Assessment Order . Therefore, this argument is misplaced. (b) With regard to other arguments on filing the return of income in erstwhile bank name and not surrendering the PAN, the return of income was filed at the time when the merger scheme was not approved by Hon'ble High Court. With regard to surrender of PAN this has relevance when the whole business is merged with the new company and what is relevant is not existence of the PAN, the relevance is how the Assessing Officer treats the non existing company in the Assessment Order particularly when it is brought to his notice of the facts. Considering the above discussion, we allow the additional ground (i) raised by the assessee

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Incorrect computation of refund and adjustment of refunds while computing interest under Section 244A.
3. Addition on account of cessation of liabilities under Section 41(1).
4. Validity of assessment order passed on a non-existent entity.
5. Deduction in respect of education cess.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The primary issue raised by the assessee was the disallowance under Section 14A. The assessee argued that the Ld. CIT(A) erred in confirming the disallowance made by the assessing officer. The assessee cited the Apex Court's decision in Maxopp Investments Ltd. (402 ITR 640), which held that disallowance under Section 14A is only warranted when expenditure has been actually incurred in earning tax-free income. The assessee provided details showing that interest-free funds exceeded the investments earning exempt income and cited multiple case laws supporting their position that Section 14A is not applicable when investments are held as stock in trade. The Tribunal, considering the rival submissions and material on record, directed the Assessing Officer to delete the interest disallowance made under Rule 8D(2)(ii) of the I.T. Rules, following the decision of the Hon'ble Jurisdictional High Court in CIT v. HDFC Bank Ltd (366 ITR 505).

2. Incorrect Computation of Refund and Adjustment of Refunds while Computing Interest under Section 244A:
The assessee contended that the Ld. CIT(A) failed to decide on the issue of incorrect computation of refund and adjustment of refunds while computing interest under Section 244A. The assessee argued that the refund granted should first be adjusted against the interest and then against the tax. The Tribunal, considering the submissions and relevant case laws, restored the issue to the file of the Assessing Officer for de novo adjudication after providing adequate opportunity to the assessee.

3. Addition on Account of Cessation of Liabilities under Section 41(1):
For the A.Y. 2009-10, the assessee challenged the addition made under Section 41(1) concerning amounts debited to the provision for depreciation on securities, which were never claimed as deductions. The Tribunal did not provide a detailed ruling on this issue as the primary focus was on the validity of the assessment order.

4. Validity of Assessment Order Passed on a Non-Existent Entity:
The assessee raised an additional ground contending that the assessment order was passed on a non-existent entity due to the merger of State Bank of Indore with State Bank of India. The Tribunal admitted this additional ground, noting that the facts were on record and did not require fresh investigation. The Tribunal referred to the decision in the case of State Bank of Bikaner and Jaipur v. ACIT, where it was held that an assessment order passed in the name of a non-existent entity is void ab initio. The Tribunal quashed the assessment orders for the relevant assessment years, following the decision of the Hon'ble Supreme Court in PCIT v. Maruti Suzuki India Ltd. (416 ITR 613).

5. Deduction in Respect of Education Cess:
The assessee raised an additional ground seeking deduction for education cess. However, the Tribunal did not specifically address this issue in the detailed analysis provided.

Conclusion:
The appeals filed by the assessee were allowed for statistical purposes, with directions for de novo adjudication on certain issues. The appeals filed by the revenue were dismissed as infructuous due to the quashing of the assessment orders. The Tribunal emphasized the importance of following judicial precedents and ensuring that assessment orders are passed in the name of the correct legal entity.

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