2024 (11) TMI 868 - AT - Income Tax

Computation of total income in the Computation Sheet attached with the assessment order - HELD THAT - We notice from the assessment order that the total income was determined by the AO at Rs. 16,82,668/-. However, in the computation sheet, the total income has been taken as Rs. 36,69,410/-. We also find that the AO has not given any explanation for the income so adopted in the computation sheet. Hence, there is some merit in the submission of the Ld.AR that there was an error in adopting the figure of total income by the AO in the computation sheet. However, we are of the view that this plea of the assessee requires verification at the end of AO. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and restore the same to the file of AO for examining this plea of the assessee. If it is an error as pointed out by the assessee, then the AO may correct the same. Addition made u/s. 14A - assessee had earned share income from partnership firm and claimed same as exempt. However, the assessee did not make any disallowance u/s. 14A - HELD THAT - We notice that the investment have been made by the assessee in the year 2000-01 and Over Draft facility has been obtained from ICICI Bank in November, 2014. Hence, there is merit in the contentions of the Ld A.R that the assessee could not have utilized loan funds for making investments. It is also stated that the overdraft facility availed from ICICI Bank was used for day to day activities. Hence, as per the decision rendered in the case of Gujarat Narmada Valley Fertilizers Company Ltd. 2014 (3) TMI 847 - GUJARAT HIGH COURT no disallowance out of interest expenditure is called-for. Accordingly, we set aside the order of the Ld.CIT(A) on this issue and direct the AO to delete the disallowance made under Rule 8D(2)(ii). Disallowance made under Rule 8D(2)(iii), the Ld.AR submitted that there is an error in computing average value of investment. Since this plea of the assessee requires verification, we restore this issue to the file of the AO for examining the same afresh. After affording adequate opportunity of being heard to the assessee, the AO may take appropriate decision in accordance with law. Appeal of the assessee is treated as allowed.

Summary

Issues:
1. Error in the computation of total income in the assessment order.
2. Addition made under section 14A of the Income Tax Act.

Analysis:

Issue 1: Error in the computation of total income
The appellant, a company engaged in trading agro commodities, challenged the assessment order for AY 2016-17 due to an error in the computation of total income. The AO determined the total income at Rs. 16,82,668, but the computation sheet showed it as Rs. 36,69,410 without explanation. The ITAT found merit in the appellant's claim of an error in the computation and remanded the issue to the AO for verification and correction, if necessary.

Issue 2: Addition made under section 14A of the Act
The AO disallowed a sum under Rule 8D(2)(ii) and (iii) of the Income Tax Rules, 1962, for not making any disallowance under section 14A despite earning exempt share income. The appellant argued that the overdraft facility obtained in 2014 was used for day-to-day activities, not investments made in 2000-01. Citing a Gujarat High Court decision, the ITAT agreed that no disallowance was warranted. The ITAT directed the AO to delete the disallowance under Rule 8D(2)(ii) and reconsider the disallowance under Rule 8D(2)(iii) after verifying the average value of investments.

In conclusion, the ITAT allowed the appeal of the assessee, setting aside the order of the Ld.CIT(A) on both issues and providing specific directions to the AO for further proceedings in accordance with law.