2019 (3) TMI 807 - AT - Income Tax

Disallowance u/s 14A u/s 8D - assessee has earned dividend income on investments - DR submitted that assessee incurs interest on its borrowings and since funds are maintained in a mixed account part of interest expenditure is to be held towards earning of dividend income - HELD THAT - For year under consideration, disallowance cannot be made as per Rule 8D of Income Tax Rules, 1963. We are therefore inclined to set aside the issue back to AO to compute disallowance having regard to assessment year under consideration, as well as decision in case of Maxopp Investments vs. CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA . AO is also directed that the disallowance so computed shall not exceed the exempt income earned by assessee during year under consideration. Disallowance of prior period expenses - method of accounting followed - Year of assessment - HELD THAT - For assessment year 2003-04 in assessee s own case 2015 (1) TMI 739 - ITAT DELHI has observed that expenses are always claimed by assessee in year in which the same are quantified, while allowing claim of assessee. It is observed that this method of accounting has been accepted by authorities below from assessment year 1991-92 to 2000-01. It is also observed that for assessment year 2000-01 notice under section 263 has been issued by CIT, for examining this issue, and the same has been dropped. Disallowance of commission expense - CIT-A deleted the addition - HELD THAT - CIT(A) has ignored enquiries made by AO with bank wherein there is a categorical denial by bank in dealing with M/s.Umang Credit Capital Ltd., for disbursement of loan. We are of view that Ld.CIT (A) failed to examine whether party to whom commission has been paid by assessee during this year is same as that in earlier year, and whether such loan has been taken for purposes of assessee s business. Under such circumstances we do not agree with Ld. CIT(A) as well as Ld.AR that issue stands covered by orders of this Tribunal in earlier years. We accordingly set aside this issue to Ld.AO for due verification in the light of relevant documents on record. Ld. AO is to verify the same as per law to ascertain true nature of transaction. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961.
2. Disallowance of expenses related to the prior period.
3. Disallowance of commission expense paid to a specific company.

Issue 1 - Disallowance under section 14A:
The appellant challenged the deletion of disallowance of expenses made under section 14A of the Income Tax Act. The appellant argued that the assessee did not maintain separate accounts for investments and business funds, leading to mixed financial resources. However, the Tribunal observed that the assessee had sufficient investments, and based on previous rulings and the Supreme Court decision in Maxopp Investments vs. CIT, the disallowance could not be made under Rule 8D. The issue was remanded back to the Assessing Officer to compute the disallowance not exceeding the exempt income earned by the assessee during the relevant year.

Issue 2 - Disallowance of prior period expenses:
The dispute arose regarding the disallowance of expenses related to the prior period. The revenue contended that these expenses were not allowable against the current year's income as they pertained to a preceding year. However, the Tribunal upheld the view that expenses crystallized in the year when bills were received, following the consistent accounting method of the assessee. The Tribunal found no fault in the CIT (A)'s decision to delete the addition, as supported by previous rulings and the acceptance of the accounting method by authorities.

Issue 3 - Disallowance of commission expense:
The third issue involved the disallowance of a commission expense paid to a specific company for arranging a term loan. The revenue argued that the payment was not genuine as the company did not provide any services. The Tribunal, however, found discrepancies in establishing the genuineness of the payment and directed the Assessing Officer to verify the transaction's true nature. The issue was remanded back for further examination based on relevant documents and verification by the Assessing Officer.

In conclusion, the appellate tribunal allowed the appeal filed by the revenue for statistical purposes, addressing each issue raised in the appeal and providing detailed reasoning for the decisions made.