2018 (5) TMI 504 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, rejects additions, and remands tax issue for reconsideration

The Tribunal upheld the Ld. CIT(A)'s decision to reject the net profit reported by the assessee, deleted the addition made under section 40(a)(ia) for ... Assessment of income - disregarding the loss worked-out by special auditor (appointed by Income Tax Department)- Held that:- In the assessment year under appeal, when special auditor determined the income of assessee at loss, A.O. differed with it and taken tentative figure of profit shown in the return of income. The A.O, therefore, cannot take different view in assessment year under appeal. It is the duty of the Revenue Authorities to work-out correct taxable income of the assessee. The special auditor was appointed by the A.O. and as such, its report is binding on the A.O. Therefore, the A.O. should have adopted the base figure of loss to work-out the taxable income of assessee.The Ld. CIT(A) being an Appellate Authority has correctly came to the conclusion that loss determined by the special auditor appointed by the Department shall have to be accepted by the A.O. as against tentative figure given by the assessee. No infirmity have been pointed out in the order of the Ld. CIT(A). - Decided against revenue Addition u/s 40(a)(ia) - tax was not deducted at source before the close of the relevant financial year - Held that:- CIT(A) merely deleted the addition because of the amendment in Section 40(a)(ia) of the I.T. Act without considering the issue on merit and even without considering the findings of the A.O. that assessee admitted that there was a default for TDS on the payment of ₹ 12,41,447/-. Even for other deposits of TDS, no details have been brought on record as to when tax was deducted and deposited. The matter, therefore, requires reconsideration at the level of the Ld. CIT(A). We, accordingly, set aside the order of the Ld. CIT(A) and restore this issue to his file with a direction to redecide this issue in accordance with law, by giving reasons for decision on merit in the appellate order, by giving reasonable, sufficient opportunity of being heard to the assessee. - Decided in favour of revenue for statistical purposes. Addition made on account of interest earned on earmarked funds - treatment given to liability for earmarked funds being treated as income of the assessee - Held that:- in earlier year, C & AG of India has directed that interest earned during the year on unspent earmarked fund should be credited to the same earmarked fund. Assessee is bound to follow the directions of C & AG of India. The assessee, therefore, correctly taken the interest to such fund and rightly contended that it has no authority to use, expend or utilise the interest earned for its own purposes. Therefore, when interest on earmarked fund is not related to the assessee and shall have to be spent for specific purpose, it could not be treated as income of the assessee. The Ld. CIT(A), correctly, deleted the addition - Decided in favour of assessee Disallowance under section 14A - calculated expenses u/s 14A by the special auditor were made exclusively for the income which does not form part of the total income under this Act - Held that:- No merit in this ground of appeal of the Revenue. The special auditor was appointed by the Income Tax Department who has reported that though assessee has made investments in shares of various companies, but, no dividend is received on such investments. It is, therefore, clear that no dividend income have been received or earned by the assessee. No other fact brought on record against the assessee. In the case of Cheminvest Ltd [2015 (9) TMI 238 - DELHI HIGH COURT] held that “no disallowance be made under section 14A when no exempt income is received or receivable”. Since, assessee did not earn any exempt income in assessment year under appeal, therefore, no disallowance is permissible. - Decided in favour of assessee Issues Involved:1. Rejection of net profit as per the return filed by the assessee.2. Deletion of addition made on account of disallowance under section 40(a)(ia).3. Deletion of addition made on account of interest earned on earmarked funds.4. Deletion of addition made on account of disallowance under section 14A.Issue-wise Detailed Analysis:1. Rejection of Net Profit as per the Return Filed by the Assessee:The Revenue challenged the Ld. CIT(A)'s decision to reject the net profit reported in the assessee's return, which disregarded the loss calculated by a special auditor appointed by the Income Tax Department. The Ld. CIT(A) directed the A.O. to accept the loss figure determined by the special auditor, citing the principle of consistency and fair play, as the special auditor's figures had been used in previous years. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the special auditor's report, being binding, should be used to determine the taxable income. The Tribunal distinguished the case from the Supreme Court's decision in Goetze (India) Ltd. vs. CIT, noting that the issue was not about claiming a deduction but about determining the correct taxable income based on the special auditor's report.2. Deletion of Addition Made on Account of Disallowance under Section 40(a)(ia):The A.O. had added Rs. 31,23,729 under section 40(a)(ia) for non-deduction of tax at source. The Ld. CIT(A) deleted this addition, citing an amendment to Section 40(a)(ia) effective from 01.04.2010, which allowed deductions if the tax was deposited before the due date of filing the return. However, the Tribunal found that the Ld. CIT(A) did not provide a detailed analysis or address the A.O.'s findings that the assessee admitted to defaulting on TDS for Rs. 12,41,447. Therefore, the Tribunal set aside the Ld. CIT(A)'s order and remanded the issue for reconsideration, directing the Ld. CIT(A) to provide a reasoned decision and allow the assessee an opportunity to be heard.3. Deletion of Addition Made on Account of Interest Earned on Earmarked Funds:The A.O. had added Rs. 1,01,87,691 as income from interest on earmarked funds, arguing that the assessee could not produce a balance sheet to prove that the interest was a liability. The Ld. CIT(A) deleted this addition, following the C & AG of India's directive that interest on unspent earmarked funds should be credited to the same fund and not used for the assessee's purposes. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the interest on earmarked funds, not being related to the assessee's income, could not be treated as income of the assessee.4. Deletion of Addition Made on Account of Disallowance under Section 14A:The A.O. disallowed Rs. 25,17,000 under section 14A, arguing that the dividend income earned was tax-free. The Ld. CIT(A) deleted this addition, noting that the special auditor had reported no dividend income received on the investments. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the Delhi High Court's decision in Cheminvest Ltd., which held that no disallowance under section 14A is permissible if no exempt income is received or receivable. Since the assessee did not earn any exempt income, no disallowance was warranted.Conclusion:The Tribunal dismissed the Revenue's appeal on grounds 1, 3, and 4, while remanding the issue related to ground 2 for reconsideration by the Ld. CIT(A). The appeal was partly allowed for statistical purposes.