2016 (6) TMI 1083 - AT - Income Tax

Tribunal reduces agricultural income disallowance, cites precedents, remands bad debts issue for verification

Shri Anil Bansilal Lodha Versus ACIT, Circle-1, Nashik

Shri Anil Bansilal Lodha Versus ACIT, Circle-1, Nashik - TMI Issues Involved:1. Justification of addition of Rs. 1,00,000/- by disallowing part of the agricultural income.2. Justification of disallowance of Rs. 2,58,751/- on account of expenditure related to exempt income under section 14A read with Rule 8D.3. Justification of disallowance of Rs. 4,13,218/- by rejecting the claim of deduction under section 28 or section 37(1) of the Act.Issue-wise Detailed Analysis:1. Justification of Addition of Rs. 1,00,000/- by Disallowing Part of the Agricultural Income:The assessee, engaged in construction activities, declared agricultural income of Rs. 4,52,530/- but could not provide documentary evidence such as income details, expenses, bills, and vouchers. The AO treated Rs. 1,00,000/- of this income as 'income from other sources' due to lack of substantiation. The CIT(A) upheld this decision, noting the absence of bills and vouchers and the appellant's acceptance of similar additions in the preceding year. The Tribunal, after considering past accepted agricultural incomes and the extent of landholding, concluded that the entire agricultural income declared could not be accepted without evidence. However, the disallowance of Rs. 1,00,000/- was deemed excessive, and a reduced disallowance of Rs. 50,000/- was directed, partly allowing the appeal.2. Justification of Disallowance of Rs. 2,58,751/- on Account of Expenditure Related to Exempt Income:The AO noted the assessee's investment in shares/mutual funds and interest payments of Rs. 10,02,879/-. Since no expenses were apportioned towards earning exempt income, the AO disallowed Rs. 2,28,276/- as interest and Rs. 30,475/- as administrative expenses under section 14A read with Rule 8D. The CIT(A) upheld this, stating that the AO correctly invoked section 14A, and the appellant failed to provide details of expenditure directly related to dividend income. The Tribunal, referencing the assessee's capital exceeding the investment in shares and mutual funds, followed the precedents set by the Hon’ble Bombay High Court in Reliance Utilities and Power Ltd. and HDFC Bank Ltd. It held that no disallowance of interest was required but reduced the administrative expenses disallowance to Rs. 15,000/-, partly allowing the appeal.3. Justification of Disallowance of Rs. 4,13,218/- by Rejecting the Claim of Deduction under Section 28 or Section 37(1):The AO disallowed the claim of bad debts of Rs. 4,13,218/- as they were advances to contractors and not part of sales included in previous years' total income. The CIT(A) upheld this, stating the claim was not in accordance with section 36(1)(vii) read with section 36(2), and the amounts were not in the nature of expenditure under section 37(1). The Tribunal acknowledged the need for the assessee to prove the amounts written off as business loss, which was not conclusively done. The issue was remanded back to the AO to give the assessee another opportunity to substantiate the claim with evidence, allowing the appeal for statistical purposes.Conclusion:The Tribunal provided a balanced judgment by partially allowing the appeals on the grounds of agricultural income and disallowance related to exempt income, while remanding the issue of bad debts back to the AO for further verification. The judgment emphasizes the importance of substantiating claims with proper evidence and documentation.