Tribunal directs deletion of disallowance under Rule 8D

The tribunal allowed the appeal, directing the Assessing Officer to delete the disallowance under Rule 8D read with Section 14A of the Income Tax Act, 1961, as no exempt income was earned. Regarding the disallowance of sundry balances written off, the tribunal restored the issue to the Assessing Officer for further examination to verify the claims made by the assessee.

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Issues:
1. Disallowance under Rule 8D read with Section 14A of Income Tax Act, 1961
2. Disallowance of sundry balances written off

Analysis:

Issue 1: Disallowance under Rule 8D read with Section 14A of Income Tax Act, 1961

The appeal was filed against the order of CIT(A) for the assessment year 2010-11, challenging the disallowance of Rs. 14,78,690 under Rule 8D read with Section 14A of the Income Tax Act, 1961. The Assessing Officer calculated the disallowance as the assessee had made investments without segregating expenses related to exempt income. However, during the hearing, it was argued that no expenses were incurred as the investments were old and strategically made. The tribunal allowed the claim based on the decision of the Delhi High Court, stating that no disallowance can be made if no exempt income was earned. The tribunal followed its own precedent from A.Y. 2009-10 and allowed the claim, directing the Assessing Officer to delete the addition.

Issue 2: Disallowance of sundry balances written off

The second ground of appeal related to the addition of Rs. 82,53,393 towards sundry balances written off. The Assessing Officer observed that the assessee had not provided evidence for the write-off of advances given to contractors. The AO added the write-off amounts to the income of the assessee, which was confirmed by CIT(A). During the hearing, it was argued that a similar addition in A.Y. 2009-10 was restored to the file of the AO by the tribunal for verification. Following the same reasoning, the tribunal in the current case also restored the issue to the AO for further examination. The tribunal directed the AO to verify the claims made by the assessee regarding the write-offs and decide accordingly.

In conclusion, the tribunal partly allowed the appeal on both issues, directing the AO to delete the disallowance under Rule 8D and restoring the issue of sundry balances written off for verification.

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