2020 (8) TMI 121 - AT - Income Tax

Tribunal Decides on Income Tax Disallowance: Partial Allowance, Dismissal, and Remand for Further Verification.

The Tribunal issued its decision on several disallowance issues under the Income Tax Act. Ground 1 was partly allowed, restricting the disallowance to Rs. ... Disallowance u/s. 14A r.w.r. 8D - HELD THAT:- As no break-up of investment or schedules of the balance sheet were submitted to substantiate that no expenses were incurred towards earning exempt income. Therefore, we do not find any substance in the contention of the assessee of computing disallowance to the extent of ₹ 43,634/- towards expenditure incurred for earning exempt income, however, we restrict the disallowance to the extent of exempt income to the amount of ₹ 2,48,183/- as held in the various decisions of ITAT Ahmedabad i.e. Jivraj Tea Ltd. [2014 (9) TMI 131 - ITAT AHMEDABAD]. Depreciation of Motor Car expenses - HELD THAT:- The assessee has suo motto made disallowance of ₹ 20,000/- out of motor car expenses indicating proportionately personal elements in use of motor car. During the course of assessment proceedings, the assesssee has failed to controvert the personal use of the motor car by the partners therefore the assessing officer has proportionately made disallowance @ 20% of motor car expenses as prescribed in the provisions of section 38(2) of the I. T. Act. During the course of appellate proceedings before us the ld. counsel has failed to refer any specific material to demonstrate any infirmity in the decision of the lower authority. Therefore, we do not find any merit in this ground of appeal of the assessee and the same stands dismissed. TDS u/s 194A - Disallowance u/s. 40(a)(ia) - disallowance of interest on car loan and amount paid to M/s. Naveen Trade Link Pvt. Ltd. as handling charges on which no TDS was deducted - HELD THAT:- Ld. counsel has neither demonstrated how the financial charges paid for car loan are not covered u/s. 194A nor pointed out any specific exception prescribed in section 194(3) of the Act under which the payer of the interest on car loan was covered. Alternative contention of the ld. counsel that no TDS to be made if the payee has paid tax as per proviso to section 40(a)(ia) and the judicial pronouncements referred in his submission and the claim that payment made to Navin Tradelink Pvt. Ltd. was towards reimbursement of expenses are required to be considered after examination and verification of the relevant material. Therefore, we restore both the issues as supra to the file of the assessing officer for deciding afresh after examination/verification of the relevant material to be furnished by the assessee at the time of set aside proceedings. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. Disallowance u/s. 36(1)(vii) - advances made for non-business purposes - HELD THAT:- We do not find any reference or examination of such materials in the findings of the lower authorities. It is also observed that the issue of interest paid in respect of acquiring capital assets has not been examined as prescribed in the proviso to section 36(1)(iii) in respect of period of acquisition of the asset and the date on which such asset was first put to use to determine the deduction. The assessing officer is required to examine/verify the above referred material placed in the paper book to determine the claim of the assessee that loan/advances were extended for the business purposes and in case it is found that the loan/advances used for acquiring capital asset then the assessing officer has to examine the same as elaborated above after taking into consideration the proviso to section 36(1)(iii). Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Disallowance of depreciation on motor cars.3. Disallowance under Section 40(a)(ia) of the Income Tax Act.4. Disallowance under Section 36(1)(iii) of the Income Tax Act.Detailed Analysis:Issue 1: Disallowance under Section 14A amounting to Rs. 5,13,516/-The assessing officer (AO) noticed that the assessee earned exempt income and disallowed Rs. 5,13,516/- under Section 14A read with Rule 8D of the Income Tax Act. The AO rejected the assessee's explanation that the investments were made from non-interest-bearing funds and computed the disallowance based on the lack of specific evidence. The CIT(A) upheld the AO's decision, stating that the assessee failed to provide a day-to-day fund flow analysis. The Tribunal reviewed the balance sheet and noted the significant loans and deposits, concluding that the disallowance should be restricted to the exempt income amount of Rs. 2,48,183/-, following precedents from ITAT Ahmedabad and ITAT Delhi.Issue 2: Disallowance of depreciation on motor cars amounting to Rs. 1,98,672/-The AO disallowed 20% of the depreciation on motor cars, amounting to Rs. 1,98,672/-, under Section 38(2) of the Act, as the assessee had already disallowed Rs. 20,000/- for personal use. The CIT(A) upheld this disallowance, noting the absence of evidence that the motor car was used exclusively for business purposes. The Tribunal found no merit in the assessee's appeal, as no specific material was presented to counter the AO's findings, and thus, this ground of appeal was dismissed.Issue 3: Disallowance under Section 40(a)(ia) amounting to Rs. 7,34,456/-The AO disallowed Rs. 5,51,159/- of interest on a car loan and Rs. 1,83,297/- paid to Naveen Trade Link Pvt. Ltd. for handling charges, as no TDS was deducted. The assessee argued that the interest paid to NBFCs is not covered under Section 194A and that the handling charges were reimbursements not requiring TDS. The Tribunal noted that the provisions of Section 194A were not adequately addressed by the assessee. However, the Tribunal accepted the alternative argument regarding the proviso to Section 40(a)(ia) and reimbursement claims, remanding the issue back to the AO for verification and fresh decision-making. This ground was allowed for statistical purposes.Issue 4: Disallowance under Section 36(1)(iii) amounting to Rs. 3,49,216/-The AO disallowed Rs. 3,49,216/- of interest expenditure, treating advances as non-business purposes. The CIT(A) upheld this, noting that the interest on capital asset investments should be capitalized and the assessee failed to provide a fund flow analysis. The Tribunal observed that the assessee did not demonstrate that the assets were business assets and remanded the issue back to the AO for verification of the materials and proper examination under the proviso to Section 36(1)(iii). This ground was allowed for statistical purposes.Conclusion:- Ground No. 1: Partly allowed, restricting disallowance to Rs. 2,48,183/-.- Ground No. 2: Dismissed.- Ground Nos. 3 & 4: Allowed for statistical purposes, remanded for further verification.Order pronounced in the open court on 09-07-2020.