2018 (2) TMI 1367 - AT - Income Tax

Addition u/s 41(1)- AO found that it was a trading liability and subsequently, the assessee changed his stand claiming it was a gift - Held that - Assessing Officer has not examined all the documentary evidences filed by the assessee. In view of this factual aspect, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Disallowance u/s 14A - Held that - The assessee claims that the investment was made in the partnership firm in which he was also a partner. Copy of partnership deed is not available before this Tribunal. Therefore, this Tribunal is unable to find out whether the investment is for business purpose or for earning exempted income. Moreover, the assessee also claims that no exempted income was earned by him. This was also not considered by both the authorities below, thus the matter needs to be reconsidered by the Assessing Officer Appeal of assessee allowed for statistical purposes.

Summary

Issues:
1. Addition of 69,42,446/- under Section 41(1) of the Income-tax Act, 1961.
2. Disallowance of 85,795/- under Rule 8D of the Income-tax Rules, 1962.

Analysis:

Issue 1: Addition of 69,42,446/- under Section 41(1) of the Income-tax Act, 1961:
The appellant contended that the amount in question was a gift received from the assessee's brother and not a trading liability. The appellant provided documentary evidence to support this claim, citing a precedent from the Cochin Bench of the Tribunal. However, the Assessing Officer treated the amount as a trading liability. The CIT(Appeals) upheld this decision without seeking a remand report, prompting the Tribunal to intervene. The Tribunal noted that the Assessing Officer did not thoroughly examine all the evidence presented by the assessee. Consequently, the Tribunal set aside the orders of both lower authorities and remitted the matter back to the Assessing Officer for re-examination. The Assessing Officer was directed to determine whether the amount constituted a trading liability or a gift after considering all relevant material and providing the assessee with a fair opportunity.

Issue 2: Disallowance of 85,795/- under Rule 8D of the Income-tax Rules, 1962:
The appellant argued that the disallowed amount was related to an investment made in a partnership firm where the assessee was a partner engaged in trading business, not for earning exempted income. Furthermore, the appellant claimed that no exempted income was earned. Citing a judgment of the Madras High Court, the appellant contended that disallowance was not warranted in the absence of exempted income. The Departmental Representative countered by emphasizing the appellant's initial claim of the amount as a trading liability. The Tribunal observed that the partnership deed, crucial for determining the purpose of the investment, was not available. Consequently, the Tribunal set aside the decisions of the lower authorities and remitted the matter back to the Assessing Officer. The Assessing Officer was instructed to reexamine the issue considering any partnership deed provided by the assessee and decide accordingly, after affording a reasonable opportunity to the assessee.

In conclusion, the appeal was allowed for statistical purposes, with the Tribunal directing a fresh examination of both issues by the Assessing Officer to ensure a fair and accurate determination in accordance with the law.