2023 (6) TMI 669 - AT - Income Tax

Addition u/s 14A r.w.s 8D - expenses incurred for earning exempt income - CIT(A) deleted the addition - HELD THAT - As in the case before us, it was established that no interest bearing funds were used for investment to earn exempted income, no other expenses were incurred to achieve exempted income, the interest paid also has no nexus with the amount of investment in question, however, an exempt income was earned by the assessee in the form of dividend earned from long term investments. Therefore, disallowance u/s 14A r.w.r. 8D was not in accordance with law and therefore, the same is liable to be deleted, however, since, the assessee has gained an exempt income of Rs. 46,500/- during the relevant earlier year which was taken as Rs. 1,94,593/- by the ld. AO, this fact needs verification and thus, we restore the issue to the files of ld. AO, for the limited purpose - Appeal of the revenue is partly allowed for statistical purposes.

Summary

Issues involved: The appeal is against the order of the ld. CIT(A)-3, Bhopal for the Assessment Year 2013-14. The main issue is whether the deletion of the addition of Rs. 2,57,13,664/- made by the AO u/s 14A r.w.s 8D was justified.

Facts and Proceedings:
- The assessee, a company engaged in manufacturing and sale of various products, was selected for scrutiny under CASS for the year under consideration.
- The ld. AO, after examination, made an addition invoking section 14A of the I.T. Act, 1961.
- The assessee appealed before the ld. CIT(A) who deleted the addition, leading to the current appeal by the revenue before the ITAT.

Controversy and Arguments:
- The main controversy was the reversal of the addition made by the AO u/s 14A read with rule 8D.
- The ld. AR presented facts and case laws to support the contention that no disallowance should have been made under section 14A, as there were sufficient funds available with the assessee to make the investments without using any interest-bearing funds.
- The AR argued that the disallowance made by the ld. AO was rightly deleted by the ld. CIT(A) and should be upheld.

Decision and Rationale:
- The ITAT considered the submissions, case laws, and facts presented.
- It was established that no interest-bearing funds were used for investments to earn exempted income, no other expenses were incurred for exempted income, and an exempt income of Rs. 46,500/- was earned by the assessee.
- The ITAT concluded that the disallowance u/s 14A read with rule 8D was not in accordance with law and ordered its deletion.
- The issue of the actual exempted income earned by the assessee needed verification, and the matter was remanded back to the ld. AO for this purpose.
- The appeal of the revenue was partly allowed for statistical purposes.

Conclusion: The ITAT Raipur partially allowed the appeal, ordering the deletion of the disallowance made under section 14A read with rule 8D, and remanding the issue of verifying the actual exempted income earned by the assessee back to the ld. AO.