2022 (7) TMI 30 - AT - Income Tax

Disallowance u/s 14A - as per AO Assessee has received exempt income and has also made investments in equity shares and bonds - HELD THAT - We find that the assessee has given detailed submissions stating that the disallowance u/s 14A is not called for as no direct expenditure has been incurred to earn such exempt income and secondly interest disallowance is also not called for as sufficient interest free funds to the tune were available to cover up the investments of Rs. 6.64 crores as on 31.03.2013. AO simply brushed aside the assessee s submission without recording any satisfaction about the correctness of the claim of the assessee proceeded to make the disallowance u/s 14A applying Rule 8D of the Rules. This Action of the ld. AO is not in consonance with the provision of Section 14A and therefore, we find no justification in the said disallowance made u/s 14A of the Act. We accordingly delete the said disallowance and allow the common issue raised by the assessee.

Summary

Issues:
- Condonation of delay in filing appeals due to COVID-19 restrictions
- Disallowance u/s 14A of the Income Tax Act for AY 2013-14 to AY 2015-16

Condonation of Delay:
The appeals filed by the assessee for AY 2013-14, 2014-15, and 2015-16 were found to be time-barred by 24 days. The delay was attributed to COVID-19 restrictions. The Appellate Tribunal, in line with a judgment of the Supreme Court, excluded the limitation period for filing appeals between 15.03.2020 and 28.02.2022. Consequently, the delay was condoned, and the appeals were admitted for adjudication.

Disallowance u/s 14A of the Income Tax Act:
The primary issue across AY 2013-14 to AY 2015-16 pertained to disallowance u/s 14A of the Act, amounting to Rs. 8,95,826/-, Rs. 8,67,004/-, and Rs. 7,78,825/- respectively. The Assessing Officer (AO) observed exempt income and investments by the assessee, leading to a disallowance under Rule 8D of the Income Tax Rules. The Tribunal noted the assessee's arguments citing Supreme Court judgments and the sufficiency of interest-free funds to cover investments. The AO's failure to record satisfaction regarding the claim and the disallowance without proper assessment were highlighted. Relying on legal provisions and case law, the Tribunal concluded that the disallowance was unjustified and deleted it for all three assessment years.

Conclusion:
The Tribunal allowed the appeals for AY 2013-14 to 2015-16 partially, specifically addressing the disallowance u/s 14A of the Act. Grounds not pressed by the assessee were dismissed, and other general grounds were not adjudicated. The disallowance was deleted based on the failure to record satisfaction by the AO, in line with legal provisions and precedents cited.