2018 (7) TMI 1725 - AT - Income Tax

Tribunal allows appeals, orders reassessment under Section 14A with Rule 8D, emphasizes assessee's rights.

Suresh A Shroff And Co. (Now known as Bohimia Realty the Firm) Versus ACIT CIR 11 (3), Mumbai

Suresh A Shroff And Co. (Now known as Bohimia Realty the Firm) Versus ACIT CIR 11 (3), Mumbai - TMI Issues Involved:1. Disallowance under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.2. Short credit of Tax Deducted at Source (TDS).3. Levy of interest under Section 234B/234C of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee, a firm of advocates, filed appeals for AY 2011-12 and 2012-13 against the orders of the CIT(A) confirming additions made by the AO under Section 14A read with Rule 8D. The AO disallowed Rs. 4,89,583 for AY 2011-12 and Rs. 7,89,898 for AY 2012-13, arguing that the assessee incurred expenses for managing investments that generated exempt income. The CIT(A) upheld this disallowance, reasoning that managing investments necessitates expenses, even if the assessee claimed none were incurred.The tribunal observed that the AO did not record satisfaction as required under Section 14A(2) before invoking Rule 8D. The tribunal noted that the assessee claimed no expenses for earning exempt income and argued that portfolio managers' fees were embedded in transaction costs. The tribunal concluded that the AO must record satisfaction regarding the accounts of the assessee before making disallowances under Section 14A.The tribunal restored the matter to the AO for fresh adjudication, directing the assessee to provide detailed evidence of its investment activities and associated costs. The tribunal also agreed that disallowance under Section 14A cannot exceed the expenses claimed as deductions.2. Short Credit of TDS:For AY 2012-13, the assessee claimed that the AO/CIT(A) did not allow full credit for TDS, resulting in a shortfall of Rs. 13,25,258. The tribunal restored this issue to the AO for verification of the assessee's claim and directed that appropriate credits be granted if the claim is found genuine.3. Levy of Interest under Section 234B/234C:The assessee contested the levy of interest under Sections 234B and 234C. However, the tribunal’s decision did not specifically address this issue, implying that it was not a primary ground of contention in the appeals.Conclusion:The tribunal allowed both appeals for statistical purposes, directing the AO to re-examine the disallowances under Section 14A read with Rule 8D after recording proper satisfaction and to verify the TDS credit claim for AY 2012-13. The tribunal emphasized providing the assessee with an adequate opportunity to present evidence and arguments in the re-assessment proceedings.