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2024 (6) TMI 214 - AT - Income TaxIssues Involved: 1. Disallowance u/s 14A. 2. Addition u/s 68 for unsecured loan. 3. Ad-hoc disallowance of expenses. 4. Validity of assessment proceedings. Summary: 1. Disallowance u/s 14A: The CIT(A) deleted the disallowance of Rs. 4,00,502/- made by the AO u/s 14A of the Act. The CIT(A) observed that the assessee had sufficient interest-free funds (share capital and reserves of Rs. 16.49 crores) to explain the investment in exempt income-yielding shares of Rs. 1.40 crores. The AO failed to establish any nexus between borrowed funds and the investment. The Tribunal upheld the CIT(A)'s view, referencing the Supreme Court's judgment in South Indian Bank Ltd. Vs. CIT, which states that if interest-free funds exceed tax-free investments, no disallowance u/s 14A is warranted. 2. Addition u/s 68 for Unsecured Loan: The AO added Rs. 2,41,79,159/- as unexplained cash credit u/s 68, doubting the creditworthiness and genuineness of the loan from M/s Hillview Agencies Pvt. Ltd. The CIT(A) found that the assessee had provided sufficient documentary evidence (return of income, balance sheet, bank statement, and confirmation) to substantiate the loan. The CIT(A) noted that the lender had sufficient funds and regular transactions with the assessee. The Tribunal concurred with the CIT(A), emphasizing that the AO did not disprove the documentary evidence provided by the assessee. The Tribunal also noted that the lender was an NBFC registered with the RBI and had sufficient funds to advance the loan. 3. Ad-hoc Disallowance of Expenses: The AO made an ad-hoc disallowance of Rs. 50,000/- out of labor expenses, conveyance, vehicle running expenses, printing, and stationery expenses, citing unverifiable self-made vouchers. The CIT(A) deleted Rs. 40,000/- of the disallowance, sustaining Rs. 10,000/- for personal use of vehicles. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not provide specific instances or material to justify the disallowance. 4. Validity of Assessment Proceedings: The assessee contended that the notice u/s 143(2) was not issued within the prescribed time limit, rendering the assessment invalid. The Tribunal, having upheld the CIT(A)'s order vacating the additions, dismissed the cross-objection as academic and did not address the validity of the assessment proceedings. Conclusion: The Tribunal dismissed the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s order in favor of the assessee on all contested issues.
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