2024 (12) TMI 705 - AT - Income Tax

Disallowance u/s 14A r/w Rule 8D - HELD THAT - As it is clear that assessee do not have sufficient funds for making investments during the year under consideration. The principal thus stated in case of CIT vs Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT will not come to any assistance. Thus proportionate disallowance is to be made in respect of interest expenditure, in the hands of assessee. However, the Ld.AO is directed to first reduce the interest income earned by the assessee that is offer to tax before computing proportionate disallowance which will be in the ratio exempt income earned to the total income of assessee. Disallowance that is to be made under the 3rd limb of Rule 8D, we direct the Ld.AO to consider only such investments that yielded exempt income for the year under consideration. In support reliance was placed on the decision of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT and in case of CIT vs Corrtech Eergy Ltd., 2014 (3) TMI 856 - GUJARAT HIGH COURT MAT Computation - As there is no relation of disallowance u/s 14A while computing the book profit under section 115JB. The reason is that explanation (1) of Section 115JB adjustment is to be worked out as clause (f) where the amount of expenditure in relation to any exempt income other than specified income is required to be added to the book profit. Therefore, there is a separate mechanism provided for adjustment to the book profit of this kind of expenditure. Accordingly, lower authorities were not correct in adding notional expenditure as computed under section 14A and increasing the book profit by that sum under Section 115JB. This issue is also covered by case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI Disallowance made u/s 41 (1) - As noted that, these creditors are reflected under the trade payables. Further in the subsequent assessment years 2013-14 at Page 75 and assessment year 2014-15 these parties stand under the head trade payables. It is noted that, these parties remain to be outstanding creditors up to assessment year 2016-17 the details of which are place. In the subsequent assessment year being 2017-18 and 2018-19 these parties has been paid the outstanding balance has become nil. We find no reason to confirm the addition made by the authorities below to hold that the assessee just continued it has an entry the books of account without any intention to pay back the same is directed to be deleted.

Summary

Issues:
1. Jurisdictional issues related to notice issuance and order passing.
2. Ex-parte disposal of appeal without fair opportunity.
3. Validity of orders passed under sections 14A and 41(1) of the Income Tax Act.

Jurisdictional Issues:
The appeal raised concerns regarding the manual issuance of notices by the CIT (A) without informing the appellant, leading to orders passed by authorities outside the appellant's jurisdiction. The appellant contended that the jurisdiction of the case falls under Ahmedabad, and subsequent actions were not in line with this jurisdiction. The Tribunal analyzed the submissions and jurisdictional aspects to determine the validity of the orders.

Ex-Parte Disposal of Appeal:
The appellant challenged the ex-parte disposal of the appeal by the Commissioner of Income Tax (Appeals) without granting a fair opportunity to be heard or considering submissions. The Tribunal assessed whether the appellant was unjustly deprived of a proper hearing and whether the appellate order was legally sound.

Validity of Orders under Sections 14A and 41(1):
The Tribunal examined the disallowance of expenses under section 14A and addition under section 41(1) made by the Assessing Officer. The appellant argued against the disallowance under section 14A, stating that certain expenses were for business purposes and not related to earning exempt income. The Tribunal considered relevant case laws and the applicability of Rule 8D in determining the disallowance. Additionally, the Tribunal reviewed the addition under section 41(1) concerning outstanding creditors, analyzing whether the liabilities had ceased during the relevant assessment year.

Conclusion:
The Tribunal partially allowed the appeal, noting discrepancies in the disallowance under section 14A and the addition under section 41(1). It found that certain expenses were incorrectly disallowed and that the outstanding creditors' entries were maintained without intention to pay back. Consequently, the Tribunal directed the deletion of the addition related to outstanding creditors. The appeal was partly allowed based on the Tribunal's findings and analysis of the issues raised.