2016 (1) TMI 1233 - AT - Income Tax

Tribunal Overturns CIT(A)'s Order on Income Tax Disallowance

Dy. CIT, Circle-1, Jalgaon Versus Hari Infrastructure Pvt. Ltd.

Dy. CIT, Circle-1, Jalgaon Versus Hari Infrastructure Pvt. Ltd. - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Addition under Section 68 for treating labor charges as bogus.3. Consideration of statements without granting an opportunity to comment.4. Jurisdiction and authority of the JCIT report.5. Addition under Section 68 for treating share capital and share premium as unexplained cash credit.6. Enhancement of income by treating share capital as bogus.7. Enhancement of income on account of commission paid on bogus share capital.8. Addition on account of waiver of principal loan.9. Waiver of interest amounting to Rs. 3.78 crores.Detailed Analysis:1. Disallowance under Section 14A:The assessee challenged the disallowance of Rs. 1,08,81,171/- under Section 14A by the AO, which was confirmed by the CIT(A). The AO noted that the assessee had invested in shares of group companies using borrowed funds and paid interest on these funds. The AO applied Section 14A read with Rule 8D, disallowing the interest expenditure, despite the assessee's argument that no exempt income was received. The CIT(A) upheld this disallowance, stating that earning exempt income is not relevant for disallowance under Section 14A if interest-bearing borrowed funds are used for investment in shares. The Tribunal found merit in the assessee's argument that since the investments were made for commercial expediency and no exempt income was received, no disallowance under Section 14A should be made. The Tribunal also accepted the alternate contention that if disallowance is made, the deduction under Section 80IA should increase correspondingly, making it revenue neutral. The order of the CIT(A) was set aside, and the AO was directed to delete the disallowance.2. Addition under Section 68 for treating labor charges as bogus:The AO made an addition of Rs. 93,420/- under Section 68, treating labor charges as bogus due to non-furnishing of confirmation letters. The assessee provided a confirmation letter which was not properly considered. The Tribunal remitted this issue to the AO for fresh adjudication.3. Consideration of statements without granting an opportunity to comment:The assessee argued that the CIT(A) considered various statements without granting an opportunity to comment on them. The Tribunal found that the statements recorded from different parties were not confronted to the assessee, violating the principles of natural justice. The issue was restored to the AO for fresh adjudication.4. Jurisdiction and authority of the JCIT report:The assessee contended that the JCIT report was prepared without jurisdiction and authority. The Tribunal did not specifically address this issue separately but considered it within the broader context of procedural fairness and the need for proper opportunity to the assessee.5. Addition under Section 68 for treating share capital and share premium as unexplained cash credit:The AO made an addition of Rs. 16,84,24,300/- under Section 68, treating the share capital and share premium as unexplained cash credit. The CIT(A) enhanced the addition by Rs. 81,75,700/- and Rs. 35,32,000/- for commission paid for arranging bogus share capital. The Tribunal found that the AO of Amicitia Infrastructure Pvt. Ltd. accepted the investment in shares of the assessee company. The Tribunal restored the issue to the AO to verify the records and delete the addition if the investment was accepted. For other parties, the Tribunal noted that the assessee provided complete details, and the statements were not properly confronted. The issue was restored to the AO for fresh adjudication.6. Enhancement of income by treating share capital as bogus:The CIT(A) enhanced the income by treating the entire share capital of Rs. 17.66 crores as bogus. The Tribunal found procedural lapses and restored the issue to the AO for fresh adjudication.7. Enhancement of income on account of commission paid on bogus share capital:The CIT(A) enhanced the income by Rs. 35,32,000/- for commission paid on bogus share capital. The Tribunal restored this issue to the AO for fresh adjudication.8. Addition on account of waiver of principal loan:The AO added Rs. 2.33 crores on account of waiver of the principal loan. The CIT(A) confirmed this addition. The Tribunal restored the issue to the AO to decide afresh in light of the Bombay High Court decision in Mahindra and Mahindra Ltd. and after verifying whether the loan was for capital or trading purposes.9. Waiver of interest amounting to Rs. 3.78 crores:The AO added Rs. 3.78 crores for waiver of interest. The CIT(A) deleted this addition, noting that the interest was not debited in the profit and loss account. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remitting several issues back to the AO for fresh adjudication.