2018 (11) TMI 1865 - AT - Income Tax

Addition u/s 14A - admission of additional evidence in terms of Rule 46A of the Rules - as argued CIT(A) has not taken note of the written submission filed by the assessee dated 23/8/2017 along with annexure - HELD THAT - As in the written submission dated 23/8/2017 the assessee has specifically referred to the fact that the CIT(A) in the earlier hearing had directed the assessee to file the documents which were being filed along with the written submission. In terms of Rule 46A(4) the CIT(A) has power to call upon the assessee to produce certain documents with a view to enable him to dispose off the appeal or for any other substantial cause. Since the submissions have not taken cognizance of CIT(A) we are of the view that it would be just an appropriate to set aside the order of the CIT(A) and remand the issue of disallowance u/s 14A of the Act for fresh consideration by the CIT(A) after affording opportunity of being heard to the assessee on the admissibility of additional evidence filed by the assessee before the CIT(A) in accordance with law and thereafter adjudicate on the issue of disallowance u/s.14A of the Act. The grounds of appeal are treated as allowed for statistical purposes.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income-tax Act, 1961
2. Non-grant of set off of brought forward losses
3. Levy of Interest under section 234B and 234C of the Act

Issue 1: Disallowance of expenses under section 14A of the Income-tax Act, 1961

The appellant, a company engaged in trading Aviation Turbine Fuel, appealed against the AO's disallowance of expenses incurred to earn tax-free income under sec. 14A of the Act for the assessment year 2011-12. The AO disallowed a sum of Rs. 2,07,62,657 under sec. 14A as the appellant allegedly failed to show how investments were made out of non-interest bearing funds. The CIT(A) upheld the AO's order, stating that the appellant did not provide the required details and invoked Rule 8D for disallowance. The appellant contended that no actual expenditure was incurred to earn exempt income, and investments were made using its own funds, not borrowed funds. The Tribunal observed that the CIT(A) did not consider the detailed submissions and supporting documents submitted by the appellant, which demonstrated that borrowed funds were used only for business purposes, not for investments generating tax-free income. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue of disallowance under sec. 14A for fresh consideration, directing the CIT(A) to allow the appellant an opportunity to present additional evidence in accordance with the law.

Issue 2: Non-grant of set off of brought forward losses

The appellant claimed a set off of brought forward losses of AY 2009-10 amounting to Rs. 1,816,502, which was not granted by the AO and CIT(A). The Tribunal directed the AO to verify the claim for set off of brought forward losses and allow the set off in accordance with the law.

Issue 3: Levy of Interest under section 234B and 234C of the Act

The AO levied interest under sec. 234B at Rs. 2,803,510 instead of Rs. 1,109,472 and under sec. 234C at Rs. 727,845. The Tribunal noted that despite specific grounds raised by the appellant regarding the wrong computation of interest, the CIT(A) did not adjudicate on this matter. The Tribunal directed the CIT(A) to ensure that interest under sec. 234B and 234C is charged in accordance with the law after verifying the facts and applying the relevant statutory provisions correctly.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, setting aside the CIT(A)'s order on the disallowance of expenses under sec. 14A and directing a fresh consideration, granting the set off of brought forward losses, and ensuring the correct levy of interest under sec. 234B and 234C.