2023 (6) TMI 436 - AT - Income Tax

Addition of opening balances of the trade creditors - AO made the two additions by treating the opening balances as unexplained - made partial additions in the preceding year and the remaining amounts in the current year towards the closing balance of the last year - HELD THAT - Once there is a difference in the account in the opening balance and there is no further transaction for the year, then no addition can be made on that score. If the AO was not satisfied with the correctness of the balances appearing in the last year, then he ought to have made addition for the full difference in the preceding year. Having not made full addition due to non-reconciliation of the balances in the preceding year, and there being no fresh transactions, AO cannot be allowed to make addition in the current year towards opening balances. Therefore, order to delete the addition. Disallowance u/s.14A r.w.r. 8D - addition made towards interest expenses - HELD THAT - When the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. More recently, in CIT(LTU) VS. Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT has reiterated the same view. When we examine the amount of Investments at Rs. 67.95 lakh lakh as against the availability of Share Capital and Reserves at Rs. 1.64 crore, it becomes evident that the amount of such Investments is less than the amount of the assessee s capital. We, therefore, order to delete the disallowance of Rs. 92,108/-.

Summary

Issues involved:
1. Confirmation of addition of Rs. 5,30,186 in respect of opening balances of trade creditors.
2. Confirmation of disallowance under section 14A of the Income-tax Act.

Issue 1: Confirmation of addition of Rs. 5,30,186 in respect of opening balances of trade creditors:

The appeal arose from the order passed by the CIT(A) regarding the addition of Rs. 5,30,186 in relation to the opening balances of trade creditors. The AO had made partial additions in the preceding year and the remaining amounts in the current year towards the closing balance of the last year. However, the Tribunal held that no addition can be made in the current year towards opening balances if there are no fresh transactions and the AO had not made full additions in the preceding year due to non-reconciliation of balances. Therefore, the Tribunal ordered to delete the addition of Rs. 5,30,186.

Issue 2: Confirmation of disallowance under section 14A of the Income-tax Act:

The AO computed disallowance under section 14A r.w. Rule 8D(2)(ii) at Rs. 92,108 and under Rule 8D(2)(iii) at Rs. 33,978. The Tribunal upheld the disallowance of Rs. 33,978 as it was rightly computed at 0.5% of the average value of investments towards expenses. However, regarding the disallowance of Rs. 92,108 towards interest expenses, the Tribunal referred to relevant case laws and observed that the amount of investments was less than the amount of the assessee's capital. Citing precedents, the Tribunal ordered to delete the disallowance of Rs. 92,108.

Separate Judgement:
No separate judgment was delivered by the judges in this case.

This summary provides a detailed overview of the judgment, addressing each issue involved and the Tribunal's decision on each point.