2021 (11) TMI 703 - AT - Income Tax

Disallowance u/s 14A - proof of no exempt income - HELD THAT - On going through the financial statements of the assessee, we find that the assessment had mad investments and interest was debited to P L Account, but, suo-moto, the assessee has not disallowed any expenditure u/s 14A of the Act. Further, it was observed that there is no exempt income received by the assessee during the impugned AY - disallowance made by the AO u/s 14A r.w.r. 8D is not correct. It is a settled law that if there is no exempt income, no disallowance can be made as there are Catena of judgements of Hon ble Tribunal that if there is no exempt income, no disallowance can be made u/s 14A of the Act. Therefore, we uphold the order of CIT(A) in deleting the disallowance made u/s 14A rwr 8D of the Act. Thus, the ground raised by the revenue on this issue is dismissed. Disallowance of expenditure in respect of bogus sub-contracts - AO observed that a survey u/s 133A was conducted by the ADIT, Unit I, in which certain bogus sub-contract expenses came to light - HELD THAT - CIT(A) accepted that the payments made by way of cheques and the TDS made on the payments made to sub-contractors. However, the CIT(A) has not examined the genuineness of the works undertaken by the sub-contractors and he did not examine any other related documents for substantiating sub-contract works done by the sub-contractors. Merely considering that the TDS was deducted on the payments made to sub-contractors is not sufficient reason to delete the addition. We also find that the CIT(A) brushed aside the objections raised by the AO in his order. Therefore, keeping in view the findings recorded by the AO and in the interest of justice, we remit this issue back to the file of the AO with a direction to examine the additional evidences filed by the assessee before the CIT(A) and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee in the matter. Thus, this ground is treated as allowed for statistical purposes. Addition towards excess debit - AO observed that the total purchases on which TCS made is less that the purchase of liquor debited in the P L Account and excess which was added back to the total income - CIT-A delete the addition - HELD THAT - While deleting the addition made by the AO, the categorical finding of the CIT(A) is that The AO was not justified in not considering the Form 26AS of the appellant company wherein the purchase of liquor by the appellant from A.P. Beverages Corporation Limited (APBCL) is evident. Therefore, we do not find any reason to interfere with the order of the CIT(A) and upholding the same, we dismiss the ground raised by the revenue on this issue.

Summary

Issues:
1. Disallowance made under section 14A of the Income Tax Act.
2. Admission of additional evidence in contravention of Rule 46A for bogus-subcontract expenditure and liquor purchases.
3. Disallowance of expenditure in respect of bogus sub-contracts.
4. Disallowance in respect of excess debit of liquor purchases.

Analysis:

Issue 1: Disallowance under section 14A:
The Revenue challenged the deletion of disallowance made under section 14A. The assessee had investments in subsidiary companies and debited interest expenditure to the P&L Account. The AO disallowed an amount under section 14A, which the CIT(A) deleted. The ITAT upheld the CIT(A)'s decision as there was no exempt income received by the assessee during the relevant assessment year. The ITAT cited established legal principles that disallowance under section 14A cannot be made if there is no exempt income, leading to the dismissal of the Revenue's appeal on this ground.

Issue 2 & 3: Deletion of expenditure related to subcontract payments:
The AO disallowed subcontract payments based on a survey that revealed certain expenses as bogus. The CIT(A) accepted additional evidence provided by the assessee and deleted the disallowance. However, the ITAT found that the CIT(A) did not adequately examine the genuineness of the subcontract works and related documents. Therefore, the issue was remitted back to the AO for further examination, allowing the ground for statistical purposes.

Issue 4: Excess debit of liquor purchases:
The AO added an amount for excess debit in liquor purchases, which the CIT(A) deleted after considering additional evidence. The ITAT upheld the CIT(A)'s decision, emphasizing that the AO failed to consider relevant information from Form 26AS regarding liquor purchases. The ITAT dismissed the Revenue's appeal on this ground, affirming the deletion of the addition.

In conclusion, the ITAT partially allowed the Revenue's appeal for statistical purposes on the subcontract payments issue, while upholding the CIT(A)'s decisions on disallowance under section 14A and excess debit of liquor purchases. The judgment highlights the importance of substantiating expenses and considering all relevant evidence in tax assessments.