TMI Blog2023 (10) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... licable. This argument of the assessee was accepted by ld CIT(A), and hence the corresponding disallowance was deleted by ld CIT(A). As Counsel stated that despite of this, ld CIT(A) had enhanced the addition without issuing notice to the assessee for enhancement and without giving opportunity to the assessee. Therefore, enhancement made by the CIT(A) is bad in law and needs to be deleted. Reliance can be placed on the judgment in the case of CIT Vs. Lotte India Corporation Ltd [ 2006 (9) TMI 141 - MADRAS HIGH COURT] . Hence, note that ld. CIT(A) without giving an opportunity to the assessee, has enhanced the assessment, therefore addition made by the ld CIT(A) t is hereby deleted. - Shri Dr. A. L. Saini, Accountant Member For the Appellant : Shri Mehul Shah, CA For the Respondent : Shri Vinod Kumar, Sr. DR ORDER PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short the ld. CIT(A) ], National Faceless Appeal Centre (in short the NFAC ), dated 13.06.2023, which in turn arises out of an assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om agricultural activity. Thus, assessing officer observed that the assessee has incurred expenditure relatable to exempt income. Thus, the provision section 14A applies in the assessee`s case. Section 14A provides that for computing of the Income of an assessee, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the assessee s total income under the Income Tax Act. Ongoing through the balance sheet of the assessee as on 31.03.2014, it was noted by the assessing officer that the assessee has taken secured loan of Rs. 4,01,749/- and unsecured loan of Rs. 1,98,48,805/- and claimed interest expenses of Rs. 8,08,065/- in profit and loss account. The exempted investment is attributable towards exempted investment. Accordingly, the assessing officer worked out the disallowance under section 14A of the Act, as follows: WORKING OF INTEREST DISALLOWANCE U/S. 14A:- Therefore, the assessee was asked by assessing officer, vide show cause dated 07.11.2016, to furnish explanation as to why provision of section 14A of the I.T. Act should not be applied and disallowance should not be made according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished any separate account for expenses incurred for earring of exempt income. Hence, section 14 of the I.T. Act attracts in your case. Therefore, you are asked to furnish explanation as to why expenditure incurred of Rs. 7,56,965/- for earning exempt income should not be disallowed u/s 14A of the I.T. Act as worked out of Rs. 7,56,965/- as per rule 8D of the income tax. Further, it is noticed that you debited interest expense of Rs. 18,08,065/- in profit and loss account. Further, verification of details of interest expenses, it is noticed that you have paid/credited interest in the account of following persons on which tax has not been deducted at source: Sr. No. Name of the person Interest amount (Rs.) 1. Bajaj Finserve Lending 4,25,493 2. Deutsche Bank AG 5,94,196 3. Religare loans 4,94,881 4. Tata Capital 2,15,581 TOTAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in appeal before the ld. CIT(A) who has confirmed the addition of Rs. 7,65,965/- made by the Assessing Officer in respect of disallowance under section 14A of the Act and the disallowance under section 40(a) (ia) of the Act has been enhanced by ld CIT(A) from Rs. 9,73,186/- to Rs. 11,35,955/-. 10. The observations of the ld. CIT(A) in respect of disallowance under section 14A of the Act, are as follows: 4. The first issue is disallowance u/s 14A. During the year under consideration, the assessee declared exempt income from partnership firm, income from dividend and income from agricultural activity. The AO noted that the assessee had incurred expenditure relatable to the exempt income earned and therefore invoked the provisions of section 14A rw rule 8D resulting in addition of Rs. 7,65,965. 4.1 In the appellate proceedings, the assessee submitted that the interest and banking charges aggregating to Rs. 18,08,065 paid to various banks and financial institutions was purely used for business activity. It was also contended that the investment in partnership firm were strategic investments and therefore to be excluded for the purpose of average investments u/s 14A r. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-Tax Act, 1961, provides for disallowance of expenditure incurred in relation to earning of exempt income. The Central Board of Direct Taxes (CBDT) vide notification no. 43/2016 dated 2 June, 2016, has amended Rule 8D. The new Rule 8D will come into effect from the date of its notification in Official Gazette. In terms of the existing provisions of Rule 8D, the amount to be disallowed shall be the aggregate of (i) expenses directly incurred to earn exempt income; (ii) interest expense (not directly attributable to any exempt income) worked out on the basis of a prescribed formula; and (iii) 0.5% of the average value of investments yielding exempt income. I note that assessee has invested the amount out of own free funds, which is more than the investment, hence no disallowance on account of interest expenses should be made. For that I rely on the judgment of Bennett Coleman Co. Ltd. vs. Additional Commissioner of Income-tax, Mumbai, [2018] 89 taxmann.com 415 (Mumbai - Trib.), wherein it was held as follows: Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income (Interest) - Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) considered only the balance interest of Rs. 9,73,186/- (Rs. 17,30,151 - Rs. 7,56,965) for disallowance u/s 40(a)(ia) for non-deduction of tax at source. On appeal by the assessee, the ld CIT(A) has enhanced the addition from Rs. 9,73,186/- to Rs. 11,35,955/-, without giving notice of enhancement. However, I note that during the appellate proceedings, the assessee submitted before ld CIT(A) that out of the total interest of Rs. 17,30,151/-, the interest of Rs. 5,94,196/- was paid to M/s Deutsche Bank AG and since the entity was a banking company, the provisions of section 194A were not applicable. This argument of the assessee was accepted by ld CIT(A), as M/s Deutsche Bank AG is a banking company and hence the corresponding disallowance was deleted by ld CIT(A). The ld Counsel stated that despite of this, ld CIT(A) had enhanced the addition from Rs. 9,73,186/- to Rs. 11,35,955/-, without issuing notice to the assessee for enhancement and without giving opportunity to the assessee. Therefore, enhancement made by the ld CIT(A) is bad in law and needs to be deleted. In this regard, reliance can be placed on the judgment of Hon`ble Madras High Court in the case of CIT Vs. Lotte India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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