2019 (11) TMI 1301 - HC - Income Tax

Disallowance of the assessee s claim of exemption in respect of profit on sale / redemption of investments - Addition u/s 14A - HELD THAT - Appeal admitted on substantial of law. Disallowance of 25% of Bogus Risk Inspection Survey Expenses after necessary calculation, as the assessee has failed to substantiate its expense and there is absence of evidence of services being rendered, generation of bogus bills etc . - HELD THAT - Inspection and survey charges claimed by the Assessee which is an insurance company. AO, on the basis of statement of the Surveyor recorded by him, came to the conclusion that some of the persons had not actually discharged any duty for the Assessee Company but had merely provided accommodation entries. Tribunal, by the impugned Judgment, restricted the disallowance to 25% on the ground that there was evidence only with respect to part of the claim namely in relation to the inspection charges. The entire issue is based on appreciation of evidence and no question of law arises. This additional question, therefore, is not entertained.

Summary

Issues:
1. Whether the ITAT was correct in upholding the decision of the CIT (A) in deleting the addition on account of disallowance of the assessee's claim of exemption in respect of profit on sale/redemption of investments?
2. Whether the ITAT was correct in concluding that the provisions of section 14A of the Income Tax Act are not applicable to the case of the present assessee?
3. Whether the Tribunal was justified in directing the Assessing Officer to restrict the disallowance to the extent of 25% of Bogus Risk Inspection Survey Expenses?

Analysis:
1. The first issue revolves around the deletion of the addition on account of disallowance of the assessee's claim of exemption in respect of profit on sale/redemption of investments. The Tribunal upheld the decision of the CIT (A) in this regard. The Assessing Officer had concluded that some persons had not discharged their duty for the company but had provided accommodation entries. The Tribunal restricted the disallowance to 25% based on evidence related to inspection charges. The High Court noted that the issue was a matter of evidence appreciation, and no question of law arose. Thus, the additional question suggested by the Revenue was not entertained.

2. The second issue concerns the applicability of section 14A of the Income Tax Act to the present assessee. The ITAT had concluded that these provisions were not applicable. However, the High Court did not delve into this issue further as it was not entertained due to the nature of the evidence involved and the absence of a legal question.

3. The third issue involves the direction given by the Tribunal to restrict the disallowance to 25% of Bogus Risk Inspection Survey Expenses. The Assessing Officer was instructed to make this restriction after necessary calculation, as the assessee failed to substantiate its expenses. The Tribunal's decision was based on the lack of evidence regarding services rendered and the generation of bogus bills. The High Court did not entertain this additional question, as it was deemed to be a matter of fact and evidence rather than a legal issue.

In conclusion, the High Court addressed the substantial questions of law raised in the Income Tax Appeal, focusing on the interpretation and application of relevant provisions of the Income Tax Act. The judgment emphasized the importance of evidence and factual considerations in determining the outcomes of tax disputes, highlighting the need for a clear distinction between legal questions and matters of fact.