2017 (12) TMI 913 - AT - Income Tax

Enhancement of income on account of excessive interest claimed in the P & L account - Held that - The assessee neither during remand proceedings nor during First Appellate Proceedings could reconcile or explain the difference in the interest expenditure claimed. Even before us the ld. AR has failed to explain the difference in interest expenditure as claimed in P & L account and the statement of interest furnished before the Commissioner of Income Tax (Appeals). In P & L account the assessee has claimed interest expenditure ₹ 31,20,483/- as against actual payment of interest ₹ 19,70,509/-. In the absence of any explanation, we find no reason to interfere with the findings of Commissioner of Income Tax (Appeals) qua the addition - Decided against assessee Disallowance u/s. 40(a)(ia) - AR has prayed for remitting the issue back to the file of Assessing Officer in the light of newly inserted second proviso to section 40(a)(ia) - Held that - Remitting the issue to Assessing Officer for verification in the light of newly inserted proviso even respect of earlier assessment year has been approved by Hon ble Delhi High Court in the case of Commissioner of Income Tax Vs. Ansal Land Mark Township P. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT . Therefore, in view of above we deem it appropriate to restore this issue back to the file of Assessing Officer with a direction to assessee to furnish all the relevant documents before the Assessing Officer evidencing that interest paid by assessee has been offered to tax by recipients in their respective return of income Disallowance u/s 14A - Held that - The assessee has not demonstrated before the Tribunal that interest free funds of assessee are sufficient to cover the investments. However, It is made clear that while computing disallowance u/s. 14A r.w.r. 8D(2)(iii) only those investments should be taken into consideration on which the assessee has earned interest free income. Accordingly, ground No. 3 raised in the appeal by assessee is allowed for statistical purpose. Disallowance u/s. 40A(3) on account of cash payments made for purchase of land - Held that - after perusal of the impugned order it is not evident whether the authorities below have examined the fact regarding claim of deduction by assessee during the period relevant to the assessment year under appeal. We deem it appropriate to restore this issue back to the file of Assessing Officer for verification. If the assessee has not claimed the amount of ₹ 5,50,000/- as deduction during assessment year under appeal, no disallowance u/s. 40A(3) is warranted. Accordingly, ground No. 4 raised in the appeal by assessee is allowed for statistical purpose. Disallowance u/s. 40(a)(ia) - contention of the assessee is that he has deducted tax at source while making the aforesaid payments as professional fees - Held that - A perusal of the impugned order shows that there is no findings by the Commissioner of Income Tax (Appeals) on the aforesaid disallowance. Therefore, we deem it appropriate to remit this issue back to the file of Assessing Officer for verification. If the assessee has deducted tax at source on the payment of professional fees and has deposited the TDS to the Government exchequer, no disallowance u/s. 40(a)(ia) is to be made. The assessee is directed to furnish necessary evidence before Assessing Officer in support of his claim. Accordingly, ground No. 5 raised in the appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Enhancement of income by ?11,49,970/-.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.
4. Disallowance under Section 14A read with Rule 8D.
5. Disallowance under Section 40A(3) for cash payments.
6. Disallowance of professional fees under Section 40(a)(ia).

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals were time-barred by 160 days and 7 days, respectively. The assessee filed applications supported by affidavits seeking condonation of delay. The Tribunal, satisfied with the reasons provided, condoned the delays and admitted the appeals for hearing and disposal on merits.

2. Enhancement of Income by ?11,49,970/-:
The Commissioner of Income Tax (Appeals) [CIT(A)] observed discrepancies in the interest expenditure claimed by the assessee in the Profit & Loss (P&L) account and the statement of interest furnished during the appellate proceedings. The assessee failed to reconcile these discrepancies. Consequently, the CIT(A) made an addition of ?11,49,970/-. The Tribunal found no reason to interfere with this finding due to the lack of explanation from the assessee and dismissed the ground.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The assessee had paid interest to financial institutions without deducting tax at source, leading to disallowance under Section 40(a)(ia). The Tribunal considered the newly inserted second proviso to Section 40(a)(ia) and remitted the issue back to the Assessing Officer (AO) for verification. The AO was directed to verify if the interest paid by the assessee was offered to tax by the recipients in their respective returns of income. This ground was allowed for statistical purposes.

4. Disallowance under Section 14A read with Rule 8D:
The CIT(A) had made a disallowance of ?60,871/- under Section 14A read with Rule 8D. The assessee contended that disallowance was made on investments that did not yield any tax-free income and that sufficient interest-free funds were available. The Tribunal remitted the issue back to the AO for verification, instructing that only investments yielding tax-free income should be considered for disallowance. This ground was allowed for statistical purposes.

5. Disallowance under Section 40A(3) for Cash Payments:
The assessee made cash payments totaling ?5,50,000/- for land purchases, which were disallowed under Section 40A(3). The assessee argued that these payments were made out of business expediency and no deduction was claimed for these amounts as the lands were shown as stock-in-trade. The Tribunal remitted the issue back to the AO to verify if the amounts were claimed as deductions. If not claimed, no disallowance under Section 40A(3) should be made. This ground was allowed for statistical purposes.

6. Disallowance of Professional Fees under Section 40(a)(ia):
The AO disallowed ?25,000/- paid as professional fees under Section 40(a)(ia), claiming non-compliance with TDS provisions. The assessee contended that TDS was deducted and paid. The Tribunal remitted the issue back to the AO for verification. If the TDS was indeed deducted and paid, no disallowance should be made. This ground was allowed for statistical purposes.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues remitted back to the AO for verification and re-adjudication based on the provided guidelines. The Tribunal directed the AO to afford sufficient opportunity to the assessee during re-adjudication.