2020 (11) TMI 364 - AT - Income Tax

Addition u/s. 14A - AO stated that assessee has shown exempt income as dividend of ₹ 3,35,994/- from investment made in shares and securities and claimed interest expenditure of ₹ 10,28,811/-. - HELD THAT - AO has incorrectly taken exempt income as ₹ 3,35,994/- while disallowing ₹ 14137/- u/s. 14A of the Act. However, the amount of ₹ 3,35,994/- was represented as investment made by the assessee as on 31-03-2010. From paper book furnished by the assessee comprising annual account showing investment of ₹ 4,12,451/- and as on 31st March, 2009 and investment of ₹ 3,35,994/- as on 31st March, 2010. The total exempt income of dividend was shown at ₹ 4,206/- only. The assessee has not furnished any other evidences to substantiate that no expenditure including administrative expenditure was incurred towards earning except income. We observe that lower authority has incorrectly computed the disallowance u/s. 14A r.w.r. 8D of the Act, therefore, we restrict the disallowance to the extent of dividend income of ₹ 4,206/- earned by the assessee. Accordingly, this ground of appeal of the assessee is partly allowed. Addition u/s. 69 - assessee has made investment in immovable property jointly - share of the assessee in the property was of 50% - CIT(A) has partly allowed the appeal of the assessee - HELD THAT - We observe that assessee had tried to explain the part investment made out of ₹ 76 lacs in the earlier years which had already been deleted by the ld. CIT(A). However, in respect of payment made during the previous year relevant to the year under consideration, the assessee had only explained the source of payment of ₹ 10 lacs out of the total amount of payment of ₹ 32,82,528/-. - no error in the decision of ld. CIT(A) in restricting the addition to the extent of ₹ 22,85,528/- since the assessee had failed to substantiate the source of this investment during the year under consideration. Accordingly, this ground of appeal of the assessee is dismissed. Addition u/s. 68 - Unsecured loan taken from various parties - CIT(A) has restricted the addition to the extent of loan amount of ₹ 2,55,500/- obtained by the assessee during the year under consideration - HELD THAT - As gone through the paper book furnished by the assessee comprising copies of confirmation letter, identity of the lender, ledger account of the depositors placed at pages 50 to 99 of the paper book. However, the Assessing Officer has not made any verification and inquiry to disprove the correctness of the information furnished by the assessee. CIT(A) has also not given any reasons and findings in support of his decision to restrict the addition in respect of loan amount of ₹ 2,55,500/- obtained during the year under consideration. We consider that the decision of ld. CIT(A) is not justified, therefore, this ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Addition under Section 14A of the Income Tax Act.
2. Addition under Section 69 of the Income Tax Act for unexplained investment in land.
3. Addition under Section 68 of the Income Tax Act for unexplained cash credits.

Detailed Analysis:

Ground No. 1 (Addition of ?14,137/- u/s. 14A of the Act):

During the assessment, the Assessing Officer (AO) noted that the assessee had shown exempt income as dividend of ?3,35,994/- from investments in shares and securities and claimed interest expenditure of ?10,28,811/-. The AO computed the expenditure attributable to earning exempt income at ?14,137/- under Section 14A as per Rule 8D of the Income Tax Rules, 1962. The CIT(A) upheld this addition, stating the AO correctly applied Section 14A. However, it was found that the AO incorrectly considered ?3,35,994/- as exempt income, which was actually the investment amount as on 31-03-2010. The correct exempt income was ?4,206/-. The lower authority's computation was incorrect, and thus, the disallowance was restricted to the extent of ?4,206/-. This ground of appeal was partly allowed.

Ground No. 2 (Addition of ?22,85,528/- u/s. 69 of the Act):

The AO noticed that the assessee made a joint investment in immovable property amounting to ?1,08,85,128/-, with a 50% share computed at ?54 lakhs. The assessee could only explain a payment of ?10 lakhs, leading the AO to treat ?44 lakhs as unexplained investment. The CIT(A) partly allowed the appeal, noting that the appellant had advanced ?24 lakhs to a co-owner in an earlier year, which was used for the investment. However, the assessee failed to explain the source of ?22,85,528/- invested during the year. The CIT(A) confirmed the addition of ?22,85,528/- and deleted the balance. The tribunal found no error in the CIT(A)'s decision, as the assessee failed to substantiate the source of the investment. This ground of appeal was dismissed.

Ground No. 3 (Addition of ?2,55,500/- u/s. 68 of the Act):

The AO observed that the assessee showed ?2,24,13,254/- as unsecured loans but failed to provide supporting evidence, leading to the entire amount being treated as unexplained investment. The CIT(A) restricted the disallowance to ?2,55,500/-, noting that ?2,14,28,772/- represented opening balances, which could not be added under Section 68. The CIT(A) deleted the addition of the opening balances and the interest credited on old loans, amounting to ?9,34,570/-, but confirmed the addition of ?2,55,500/- for new deposits during the year. The tribunal found that the AO did not verify the information provided by the assessee, and the CIT(A) did not justify the restriction of the addition. Thus, this ground of appeal was allowed.

Conclusion:

The appeal was partly allowed, with adjustments made to the additions under Sections 14A, 69, and 68 of the Income Tax Act. The order was pronounced in the open court on 07-10-2020.