ITAT Kolkata allows appeal, remands for fresh adjudication on disallowances.

The ITAT Kolkata allowed the appellant's appeal for statistical purposes, remanding both issues back to the AO for fresh adjudication. Regarding disallowance under section 14A, the tribunal held that investments in equity shares were strategic and not subject to disallowance, reversing the lower authorities' order. However, the matter concerning HUDCO bonds was remanded for further assessment. Concerning disallowance under section 40(a)(ia), the ITAT directed a fresh adjudication by the AO, emphasizing the need for a fair opportunity of hearing and confronting any adverse material.

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Issues:
1. Disallowance under section 14A of the IT Act, 1961 read with Rule-8D of the IT Rules 1962.
2. Disallowance under section 40(a)(ia) of the IT Act, 1961.

Issue 1: Disallowance under section 14A of the IT Act, 1961 read with Rule-8D of the IT Rules 1962:
The appellant contested the disallowance of Rs. 8,80,905 made by the Assessing Officer under section 14A r.w.s Rule 8D of the IT Rules, 1962. The appellant argued that no expense was incurred for earning tax-free income, and thus, no disallowance was warranted. However, the CIT(A) upheld the AO's order, stating that the tax auditor had correctly computed the disallowance under Rule 8D, which the appellant had accepted. The ITAT Kolkata, after considering the arguments, found that the investments in equity shares were strategic investments and should not be subject to disallowance under section 14A. The tribunal relied on a similar case and decided to reverse the order of the lower authorities regarding the investment in equity shares. However, regarding the investment in HUDCO bonds, the matter was remanded back to the AO for fresh adjudication to determine if the investment was made out of the appellant's own funds.

Issue 2: Disallowance under section 40(a)(ia) of the IT Act, 1961:
The appellant challenged the disallowance of Rs. 1,02,130 on account of non-deduction of tax under section 40(a)(ia) of the IT Act. The AO disallowed legal and consultancy expenses claimed by the appellant for not deducting TDS under section 194J of the Act. The CIT(A) confirmed the AO's order. The ITAT Kolkata, upon hearing both parties, decided to remand the issue back to the AO for fresh adjudication. The AO was directed to confront any adverse material to the appellant and pass a speaking order after providing a fair opportunity of hearing.

In conclusion, the ITAT Kolkata allowed the appellant's appeal for statistical purposes, remanding both issues back to the AO for fresh adjudication.

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