2023 (6) TMI 873 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - assessee failed to reconcile the bank statement and some of the expenses claimed in P L were attributable to the exempt income - CIT-A deleted the addition - HELD THAT - Undisputedly rather admittedly the assessee has not earned and claimed any exempt income therefore in view of prepositions rendered in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT no disallowance u/s. 14A of the Act, r.w.r. 8D of the Rules is called for. Hence we are inclined to hold that the ld. CIT(A) was right and justified in deleting the entire addition and therefore no interference is called for. Accordingly, ground no. 1 of revenue is dismissed. Addition of credit card expenses - assessee failed to reconcile the credit card payment with the information available in AIR for the year under consideration even during the remand proceedings - CIT-A deleted the addition partly - HELD THAT - CIT(A) noted that the appellant has filed additional evidence proving that the credit card payments mostly related to travelling expenses account but the amount mentioned in the credit card payment details did not tally with the travelling expenses detail. In such a situation of mismatch the CIT(A) rightly held that the credit card payment relate to travelling expenses as well as other expenses also and hence the entire credit card expenses claim by the appellant cannot be allowed fully as the appellant has failed to substantiate an establish that the entire expenses and payment made through America Express bank credit card were incurred wholly and exclusively for the purpose of business of assessee. CIT(A) was rightly adjudicate the issue by considering additional evidence and calling remand report from the AO and he was quite correct and justified in restricting the disallowance to 20% of total claim of assessee and granting relief pertaining to the remaining 80% claim made by the assessee. We are unable to see any valid reason to interfere with the conclusion arrived by the ld. CIT(A). Addition of interest income not offered to tax - assessee failed to reconcile the same with the information available in AIR for the year under consideration even during the remand proceedings - CIT-A deleted the addition - HELD THAT - CIT(A) has given liberty and direction to the Assessing Officer to verify that as to whether the assessee has offered the interest on refund for taxation for AY 2011-12 and 2012-13. In such a situation no prejudice has been caused to the revenue and there was no leakage of revenue as the interest on refund received by the assessee was offered for taxation by the assessee as per requirement of the Act. CIT(A) was quite correct and justified in confirming the addition as the assessee could not explain the difference of said amount. Therefore, we are constraint to hold that no interference is called for in the first appellate order on this issue as the ld. CIT(A) has noted correct. Decided against revenue.

Summary

Issues involved:
The issues involved in the judgment are the deletion of disallowances made by the Assessing Officer (AO) on various grounds, including disallowance under section 14A of the Income Tax Act, disallowance of credit card expenses, and disallowance of interest income not offered to tax.

Disallowance under section 14A - Issue 1:
The Revenue contended that the CIT(A) erred in deleting the disallowance made by the AO under section 14A of the Income Tax Act, without considering that the assessee failed to reconcile the bank statement and some expenses claimed were attributable to exempt income. The CIT(A) justified the deletion based on the fact that the assessee did not earn any exempt income during the year, citing relevant judgments. The Tribunal upheld the CIT(A)'s decision, stating that no disallowance was warranted as the assessee did not earn any exempt income.

Disallowance of credit card expenses - Issue 2:
The Revenue challenged the deletion of disallowance of credit card expenses by the CIT(A), arguing that the expenses were not wholly and exclusively for the business purpose. The CIT(A) considered additional evidence and remand reports, restricting the disallowance to 20% of the total claim. The Tribunal upheld the CIT(A)'s decision, stating that the appellant failed to substantiate that all credit card expenses were incurred solely for business purposes.

Disallowance of interest income - Issue 3:
The Revenue contended that the CIT(A) erred in deleting the disallowance of interest income not offered to tax, without proper reconciliation. The CIT(A) found that the interest income was offered for taxation and directed the AO to verify the same. The Tribunal upheld the CIT(A)'s decision, noting that the interest on refund received was offered for taxation, and no leakage of revenue occurred. The disallowance was confirmed to the extent of the difference not explained by the assessee.

In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the decisions of the CIT(A) on all three issues.