2024 (7) TMI 1232 - AT - Income Tax

Addition of interest income - AO has made the impugned addition on the basis of information available in the insight portal - HELD THAT - AO has not supplied the said information to the assessee. We find merit in the submissions of Ld A.R. that the assessee could have offered explanations with regard to the information available in the insight portal , if the relevant information were supplied to the assessee. We find merit in the above said submissions of Ld A.R. Principles of natural justice would require the AO to confront the materials relied upon by him for making the addition. In the instant case, we are of the view that there is violation of the above said principle. Accordingly, we are of the view that this issue needs a fresh examination at the end of the Assessing Officer Disallowance made u/s 14A - assessee has not earned any exempt income - HELD THAT - In the instant case, the admitted fact is that the assessee did not earn any exempt income. Hence, the disallowance under Section 14A of the Act is not called for as per the decision rendered in the case of IL FS Energy Development company Ltd 2017 (8) TMI 732 - DELHI HIGH COURT Hence the AO was not justified in making disallowance u/s 14A of the Act when the assessee has not earned any exempt income. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the Assessing Officer to delete the disallowance made u/s 14A - Decided in favour of assessee.

Summary

Issues involved:
1. Addition of interest income of Rs. 12.02 crores.
2. Disallowance made under Section 14A of the Act at Rs. 13.45 crores.

Analysis:

Issue 1: Addition of interest income of Rs. 12.02 crores
The Assessing Officer proposed an addition of interest income of Rs. 12.02 crores based on information from an internal portal, 'insight portal,' which the assessee could not access. The assessee argued that the AO did not provide the material relied upon for the addition. The Ld.CIT(A) upheld the addition, but the ITAT found a violation of natural justice as the AO did not supply the information to the assessee. The ITAT set aside the Ld.CIT(A)'s order and directed a fresh examination by the AO after providing relevant material to the assessee.

Issue 2: Disallowance under Section 14A of the Act
The AO made a disallowance of Rs. 13.45 crores under Section 14A as the assessee held investments but claimed no exempt income. The Ld.CIT(A) confirmed the disallowance citing Circular No. 05/2015. The ITAT referred to precedents where disallowance under Section 14A cannot exceed exempt income. As the assessee had no exempt income, the disallowance was deemed unjustified. The ITAT directed the AO to delete the disallowance under Section 14A.

In conclusion, the ITAT allowed the appeal filed by the assessee, setting aside the additions of interest income and disallowance under Section 14A. The judgment emphasized adherence to principles of natural justice and the requirement for disallowances to be proportionate to exempt income as per legal precedents.

This comprehensive analysis covers the issues of interest income addition and disallowance under Section 14A, detailing the arguments, decisions, and legal principles involved in the judgment.