2014 (1) TMI 1286 - AT - Income Tax

Disallowance u/s 14A of the Act r.w Rule 8D of the Act Held that - The submissions of the assessee have not at all been reflected or addressed in the Assessing Officer s order or the remand report - Assessing Officer s order does not consider these aspects in any manner - Assessing Officer simply stated that the reply of the assessee is silent in this regard - the assessee has made elaborate submissions before the CIT (A) - Assessee has also filed the bank statements before the CIT (A) and requested for admission - Assessing Officer has not properly considered these submissions - He has observed that assessee has not submitted anything new and has further observed that sufficient opportunity had been given to the assessee in assessment proceedings Relying upon Maxopp Investment Ltd. vs. C.I.T. 2011 (11) TMI 267 - Delhi High Court - determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard the CIT(A) has not addressed the assessee s submissions that investment was done out of preference share issue receipts and no interest bearing funds are involved Decided in favour of Assessee.

Summary

Issues:
Disallowance under section 14A read with Rule 8D amounting to Rs. 40,46,025.

Detailed Analysis:

1. Background and Facts:
The appellant, a Public Limited Company engaged in software and firmware business, showed dividend income from mutual funds as exempt u/s. 10(35) of the Act. The Assessing Officer invoked section 14A due to claimed exempt income and observed an increase in loan fund with paid interest, necessitating disallowance under Rule 8D.

2. Assessing Officer's Disallowance:
The Assessing Officer disallowed Rs. 40,46,025 under section 14A, citing the possibility of incurring administrative expenditure for earning exempt income. The AO determined disallowance in accordance with Rule 8D(2) of the I.T. Rules, considering indirect expenses as well.

3. Commissioner of Income Tax (A) Decision:
The Commissioner upheld the AO's disallowance, citing case laws and justifying the disallowance of Rs. 40,46,025. The appellant then appealed against this decision.

4. Appellate Tribunal's Analysis:
The Tribunal noted that the AO did not consider the appellant's submissions regarding no interest-bearing funds involved in investments from preference share receipts. The Tribunal observed that the AO did not address the submissions adequately and remanded the matter to the AO for fresh consideration.

5. Legal Precedents and Conclusion:
The Tribunal relied on legal precedents to emphasize the AO's duty to correct lacunae in orders and remit matters if necessary. As the AO did not reject the appellant's claims explicitly, the Tribunal directed a fresh assessment by the AO. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal's decision highlighted the importance of addressing all submissions by the appellant and ensuring a thorough consideration of facts before making disallowances under section 14A.