2017 (12) TMI 600 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D(2)(ii) - Held that - There is sufficient own funds available with the assessee company for making the investments. But we find that the investments were carried over from the earlier years and whether the same were made out of own funds or out of borrowed funds, the details of which are not available before us. That is precisely the requirement of the Hon ble Jurisdictional High Court in the case of Dhanuka & Sons vs CIT (2011 (4) TMI 861 - CALCUTTA HIGH COURT) warranting the assessee to prove the sources for making the investments in the respective years as to whether the same were made out of own funds or borrowed funds of the assessee. Hence we deem it fit and appropriate, to remand this issue to the file of the ld AO, to examine the sources for making investments in the respective earlier years of making investments and decide the same in accordance with law. Disallowance towards discount allowed - Held that - We find that the assessee had filed complete details of discounts provided to the customers by way of deduction from the sale bills under and details of discounts allowed to customers under various schemes provided by Maruti. We also find that the assessee had explained the nature of each scheme of discount before the ld AO vide letter dated 12.3.2014 together with the relevant annexures including the ledger accounts, monthly statement for April 2010 (as sample basis) and sample sale invoices. We hold that the ld AO had not appreciated the evidences submitted before them and had not taken any efforts to understand the business model of the assessee and proceeded to disallow the entire discount paid to customers. Addition towards advance from customers as unexplained cash credit u/s 68 - Held that - It is very usual for a car dealer such as assessee, to receive booking advance from various prospective customers at the time of booking the vehicle and the same would be reflected as advance from customers, which would get adjusted with the sale invoice in subsequent period on delivery of the vehicle. In case if the customer wishes to cancel the order, the same would be refunded as per the terms and conditions agreed upon. This is the general practice followed by every car dealer in the country. We find that the assessee had provided the names, address and PAN of all the parties from whom advances were received. The entire details were very much available on record before the ld AO regarding this issue which has not been appreciated by the ld AO. We find that the ld CITA had appreciated the very same evidences and deleted the addition made u/s 68 of the Act. We find that there is absolutely no case made out by the ld AO for framing this addition u/s 68

Summary

Issues Involved:
1. Deletion of disallowance made under Section 14A of the Income Tax Act read with Rule 8D(2)(ii) of the Income Tax Rules.
2. Deletion of disallowance towards discount allowed.
3. Deletion of addition towards advance from customers as unexplained cash credit under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A read with Rule 8D(2)(ii):
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of ?28,25,249 made under Section 14A of the Income Tax Act read with Rule 8D(2)(ii) of the Income Tax Rules. The Assessing Officer (AO) had observed that the assessee had received exempt dividend income of ?19,53,720 but had not disallowed any expenses related to earning this income in the return. The AO invoked Rule 8D(2) to compute the disallowance, resulting in an amount of ?33,34,804, including ?28,25,249 under Rule 8D(2)(ii). The CIT(A) deleted the disallowance under Rule 8D(2)(ii), noting that the assessee had sufficient own funds to make the investments. However, the Tribunal found that the assessee had not proved whether the investments were made from own funds or borrowed funds in earlier years. Therefore, the Tribunal remanded the issue back to the AO to examine the sources of investments and decide accordingly.

2. Deletion of Disallowance towards Discount Allowed:
The second issue was whether the CIT(A) was justified in deleting the disallowance of ?3,74,41,906 towards discount allowed. The AO disallowed the entire discount claimed by the assessee, citing lack of supporting documents and failure to reconcile discounts received from Maruti Udyog Ltd. However, the CIT(A) found that the discounts were directly deducted from the sales bills and not paid separately to customers. The CIT(A) noted that such discounts were a regular business practice and had not been disallowed in previous years. The Tribunal upheld the CIT(A)'s decision, observing that the AO had not appreciated the evidence provided by the assessee, which included detailed ledgers, monthly statements, and sample sale invoices. The Tribunal found no justifiable reason to interfere with the CIT(A)'s order and dismissed the revenue's appeal on this ground.

3. Deletion of Addition towards Advance from Customers as Unexplained Cash Credit:
The third issue was whether the CIT(A) was justified in deleting the addition of ?1,06,85,656 towards advance from customers as unexplained cash credit under Section 68. The AO added the entire amount, stating that the assessee failed to provide sufficient details and supporting documents. The CIT(A) deleted the addition, noting that the advances were usual in the car dealership business and were supported by proper documentation, including customer details and PAN. The Tribunal agreed with the CIT(A), emphasizing that the AO had not appreciated the business model and the evidence provided by the assessee. The Tribunal found no basis for the AO's addition under Section 68 and dismissed the revenue's appeal on this ground.

Conclusion:
The Tribunal partly allowed the revenue's appeal for statistical purposes by remanding the issue related to Section 14A disallowance back to the AO. The Tribunal dismissed the revenue's appeals regarding the disallowance of discounts and the addition of advances from customers. The assessee's cross-objections were dismissed as not pressed.