2013 (8) TMI 597 - AT - Income Tax

Tribunal emphasizes evidence & dissatisfaction recording in appeal decisions.

AFL Private Limited Versus Asst. CIT, Central Circle 13, Mumbai

The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The Tribunal emphasized the importance of ... Disallowance u/s 14 A of the Income Tax Act – Held that:- Initial onus to make a claim in respect of the expenditure incurred in relation to the income that does not form part of the total income, is on the assessee - Once the assessee makes such a claim with reference to its accounts, the A.O. is bound to examine the same for the purpose of satisfying himself with regard to its correctness or otherwise, and where not satisfied, determine the same in - Though there is no specific requirement of recording dissatisfaction, it is incumbent on A.O. to do so, as in its absence it cannot be ascertained if he had actually examined the assessee's claim or proceeded mechanically – In the present case, assessee's claim is without reference to the expenses incurred and claimed, much less as to which expenditure is included and to what extent - No indication of interest, if any, included therein, and which could be both in the form of direct and/or indirect expenditure. In the instant case, the said initial onus having been clearly not discharged by the assessee, which finding has been endorsed by revenue, the disallowance cannot be impugned for want of non-compliance of the procedure laid down u/s.14A(2). Again, however, none of the parties or their representatives have even as much as cared to look at the facts, which prima facie reflect an apparent case of bank borrowings having been availed for and utilized for specified purposes, so that the interest thereon could not be subject to apportionment on the basis of general pool of funds hypothesis, which would otherwise prevail. The matter, therefore, travelled back to the file of the A.O. Penalty u/s 271(1)(c) under Income Tax Act - The assessee, per its return, made an estimated disallowance at 10% of the dividend income received for the year, as accepted in the past, i.e., the two immediately preceding years. In fact, for the years prior thereto, a lower percentage by half, i.e., @ 5%, was found acceptable, with the matter having travelled upto the tribunal – Held that:- In this view of the matter, so that there was a suo motu disallowance u/s.14A as found acceptable for the preceding years, coupled with complete disclosure of facts, it would take the case away from the ambit of levy of penalty for concealment and/or furnishing inaccurate particulars of income – Reliance is place upon the decision in the case of CIT vs. Reliance Petroproducts (P.) Ltd.[2010 (3) TMI 80 - SUPREME COURT ]. Issues Involved:1. Disallowance of clearing expenses.2. Disallowance under Section 14A read with Rule 8D.3. Non-allowance of the claim for the balance amount of TDS.4. Levy of penalty under Section 271(1)(c) for disallowance under Section 14A read with Rule 8D.Issue-wise Detailed Analysis:1. Disallowance of Clearing Expenses:The assessee contested the confirmation of the disallowance of clearing expenses amounting to Rs.1,92,810/-. The total claimed amount was Rs.3,85,620/-, with payments made both by cash and cheque. The Assessing Officer (A.O.) disallowed the entire amount due to the lack of third-party vouchers and the inability of the assessee to substantiate the expenses incurred on behalf of various customers. The Commissioner of Income Tax (Appeals) [CIT(A)] found this issue consistent with past years (A.Ys. 2006-07 and 2007-08), where 50% of the claimed expenses were disallowed. The Tribunal found no reason to interfere with the CIT(A)'s order, as no improvement in the assessee's case was presented, and thus, dismissed the assessee's ground.2. Disallowance under Section 14A read with Rule 8D:The assessee, a logistics company, received dividend income of Rs.51,05,222/- and claimed it exempt under Section 10(34) of the Act. The assessee suo motu disallowed 10% of the dividend income (Rs.5,10,522/-) under Section 14A. The A.O. applied Rule 8D, resulting in a disallowance of Rs.52.45 lacs, leading to an additional disallowance of Rs.47,34,478/-. The CIT(A) confirmed this disallowance, as the assessee could not substantiate its claim or establish the nexus between interest-bearing borrowings and their utilization for business purposes. The Tribunal noted that the assessee's claim lacked an objective basis and was ad hoc. The Tribunal emphasized the need for the A.O. to record dissatisfaction with the assessee's claim explicitly and remitted the matter back to the A.O. for re-examination, particularly regarding the utilization of borrowed funds for specified purposes.3. Non-allowance of the Claim for the Balance Amount of TDS:The assessee claimed a balance TDS amount of Rs.8,98,517/-, which was not credited due to the inability to furnish relevant TDS certificates. The Tribunal remitted the matter back to the A.O. to allow the assessee to furnish the necessary evidence and substantiate the claim in accordance with Section 199, which requires TDS credit to be allowed only for the income brought to tax for the relevant year.4. Levy of Penalty under Section 271(1)(c) for Disallowance under Section 14A read with Rule 8D:The Revenue's appeal concerned the levy of penalty under Section 271(1)(c) related to the disallowance under Section 14A read with Rule 8D. The Tribunal found that the assessee had made a suo motu disallowance at 10% of the dividend income, consistent with past assessments, and had disclosed all relevant facts. The Tribunal held that the matter was remitted back to the A.O. for re-examination, and thus, the penalty for concealment or furnishing inaccurate particulars of income was not warranted. The Tribunal referenced the decision in CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) to support its conclusion that no penalty should be levied.Conclusion:In conclusion, the Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The Tribunal emphasized the importance of substantiating claims with proper evidence and the necessity for the A.O. to explicitly record dissatisfaction when rejecting an assessee's claim.