2014 (1) TMI 1709 - AT - Income Tax

Tribunal reverses fund management fee disallowance, instructs reassessment. Disagrees with Rule 8D application.

Bellwether Microfinance Fund Pvt. Ltd., Versus The Asst. Commissioner of Income-tax,

The Tribunal set aside the disallowance of fund management fees under section 40A of the IT Act, directing a fresh examination by the Assessing Officer. ... Disallowance u/s 40A - Held that:- The additional evidence filed which was claimed to be in support of payment for the services rendered, is in fact, require verification by AO. Ld. CIT(A) did not examine any of the issues, but, simply rejected , even though, Assessee placed detailed submissions before him. In view of this, we are of the firm opinion that the issue requires re-examination by AO afresh. For this purpose, we set aside the orders on this issue and restore it to the file of AO for fresh consideration after giving due opportunity to Assessee to substantiate the claim. - Decided in favour of assessee for statistical purposes. Disallowance u/s 14A - Held that:- We are unable to agree with the opinion of Ld. CIT(A). It is very clear from the judgment of the Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd., Vs. DCIT & Anr.,(2010 (8) TMI 77 - BOMBAY HIGH COURT ) that Rule 8D is not applicable to the impugned assessment year. So, the calculations prescribed under the rule cannot be invoked in the guise of reasonable disallowance. Therefore, we set aside the orders on this issue and restore the issue to the file of AO to determine the reasonable disallowance on facts and considering law on this issue. - Decided in favour of assessee for statistical purposes. Carry forward loss - Held that:- As it is observed that Assessee claims set off carry forward losses, if total income becomes positive. This aspect was not contested before Ld. CIT(A) and there is no finding on this issue. This being a legal ground, we direct the AO to examine the record and allow necessary set off of carried forward losses. - Decided in favour of assessee for statistical purposes. Calculation of interest u/s 234B is mandatory, AO is directed to verify the calculations, to be in accordance with the provisions of the Act. Issues:1. Disallowance u/s 40A of the IT Act2. Disallowance u/s 14A3. Claim of carried forward loss4. Levy of interest u/s 234BIssue 1: Disallowance u/s 40A of the IT Act:The Assessee appealed against the disallowance of fund management fees paid to a company, claiming it was in excess of the terms of the agreement. The AO disallowed a portion of the fees, citing cases in support. The CIT(A) upheld the disallowance, stating lack of evidence to prove the parties were not related and that the payment was reasonable. The Tribunal found inconsistencies in the AO's reasoning and the need for a fresh examination of the issue. The Tribunal set aside the orders and restored the matter to the AO for re-evaluation.Issue 2: Disallowance u/s 14A:The Assessee claimed exemption for dividend income under sections 10(35) and 10(34) of the Act but was asked to provide expenditure details. The AO invoked Rule 8D for disallowance, which the Assessee contested, citing non-applicability for the assessment year. The CIT(A) upheld the disallowance, relying on a decision related to Rule 8D. The Tribunal disagreed, citing the non-applicability of Rule 8D and directed the AO to determine a reasonable disallowance based on facts and law for the assessment year.Issue 3: Claim of Carried Forward Loss:The Assessee sought to set off carry forward losses, which was not contested before the CIT(A). The Tribunal directed the AO to examine and allow the necessary set off of carried forward losses, treating this as allowed for statistical purposes.Issue 4: Levy of Interest u/s 234B:The AO was directed to verify the calculations of interest u/s 234B to ensure compliance with the provisions of the Act. The appeal was treated as allowed for statistical purposes.