2025 (3) TMI 447 - AT - Income Tax

ITAT sets aside section 14A disallowance, upholds commission income addition, remands dividend treatment issues for fresh examination

ITAT Delhi set aside AO's disallowance u/s 14A r.w.r. 8D, ruling that additions based on conjecture without bonafide satisfaction violate statutory ... Disallowance u/s 14A r.w.r. 8D - as argued no satisfaction has been drawn before making the impugned addition - HELD THAT:- The comments of the Ld. AO clearly allude that the Ld. AO is making a conjecture and / or guess and that his conclusions are not based upon any bonafide satisfaction. The contemporaneous law provides for satisfaction and not any presumption. There is a huge difference between satisfaction of the officer and presumptions. Whereas, latter can be a case of the guess work, the former can only be arrived at based upon demonstrative and cogent evidences. Accordingly, we are of the view that the order of lower authority is not based upon correct understanding and appreciation of contemporary statute. The order of lower authority is therefore set aside, and we direct the Ld. AO to delete the impugned addition. Addition on account of commission income - assessee submitted that the AO held that the assessee was entitled for receipt of its commission income on accrual basis and hence he made the impugned addition - HELD THAT:- CIT(A) confirmed the addition, in view of decision of Hon’ble jurisdictional High Court dated [2011 (7) TMI 514 - DELHI HIGH COURT] in assessee’s own case. Nothing has been brought on record to indicate the order of Hon’ble Delhi High Court has been stayed. Thus, decision of CIT(A) is confirmed and all the grounds of appeal raised by the assessee are dismissed. Addition on account of commission income having relation with port charges and other charges - HELD THAT:- AO has the first authority to examine any claim of the assessee qua determination of its correct taxable income. In this view of the matter, we draw strength from decision of Tin Box Company [2001 (2) TMI 13 - SUPREME COURT] Accordingly, we set aside the order of lower authority and direct the AO to examine the details filed by the assessee for the purposes of limited verification and decide the issue in accordance with law. It shall be bounden upon the Ld. AO to provide due opportunity of being heard to the assessee and the assessee shall comply with all the statutory notices. The grounds of appeal raised by the assessee on this issue, is allowed for statistical purposes. Addition on account of treatment of alleged dividend income as interest income - Counsel submitted that the Ld. AO had misdirected himself by treating the impugned exempt dividend income as interest income - HELD THAT:- AO has the first authority to examine any claim of the assessee qua determination of its correct taxable income. In this view of the matter, we draw strength from decision of Tin Box Company [2001 (2) TMI 13 - SUPREME COURT] Accordingly, we set aside the order of lower authority and direct the Ld. AO to examine the details filed by the assessee for the purposes of limited verification and decide the issue in accordance with law. Grounds of appeal raised by the assessee on this issue, is allowed for statistical purposes. Addition invoking provision of Section 40A(2)(b) - amount was incurred for the promotion of another company in which appellant subsequently became a Director - Holding that there was no business expediency u/s 37(1), declared expenditure was disallowed by AO - HELD THAT:- Nobody can claim expenses for services rendered to himself. It was argued that the assessee became the Director of the impugned company subsequently. We have noted that the case of the assessee rest upon very weak arguments. The conclusion drawn by lower authorities on the basis of material available on record, cannot be faulted. Accordingly, we are of the view that there is no case for any intervention to the order of Ld. CIT(A). The grounds of appeal raised by the assessee, is therefore dismissed. The issues presented and considered in the legal judgment are as follows:1. Addition of Rs. 7,14,361 under Section 14A of the Act:- The issue revolves around the Ld. AO making an addition under Section 14A, invoking Rule 8D(2)(iii), without drawing proper satisfaction.- The Ld. Counsel argued against the addition, stating it was based on presumption and should be deleted.- The Tribunal found that the Ld. AO's conclusions were not based on bonafide satisfaction but on conjecture, leading to the order being set aside and the addition directed to be deleted.2. Addition of Rs. 69,53,155 on account of commission income:- The AO made the addition based on accrual basis for commission income, which was confirmed by the Ld. CIT(A) citing a previous court decision.- The Tribunal upheld the decision of the Ld. CIT(A) in compliance with the previous court decision, dismissing the grounds of appeal raised by the assessee.3. Addition of Rs. 75,39,437 on account of commission income related to port charges:- The assessee raised concerns about the authorities not considering their evidences properly.- Additional evidences were filed during the hearing, and the Tribunal admitted these evidences for further examination by the Ld. AO.4. Addition of Rs. 22,60,059 for alleged dividend income treated as interest income:- The Ld. AO treated exempt dividend income as interest income, which was contested by the assessee.- Both parties agreed that adequate evidences were not provided to the authorities, leading the Tribunal to direct the Ld. AO to reexamine the issue with proper verification.5. Addition of Rs. 4,10,895 under Section 40A(2)(b) for promotion expenses:- The Ld. AO disallowed the declared expenditure for promotion of another company in which the appellant later became a Director.- The Tribunal upheld the decision of the lower authorities, dismissing the grounds of appeal raised by the assessee.Significant holdings:- The Tribunal set aside the addition under Section 14A, directing the Ld. AO to delete the amount.- The Tribunal confirmed the addition of commission income based on accrual basis in compliance with a previous court decision.- The Tribunal admitted additional evidences for examination in relation to the commission income related to port charges.- The Tribunal directed the Ld. AO to reexamine the treatment of alleged dividend income as interest income with proper verification.- The Tribunal dismissed the appeal concerning the disallowed promotion expenses.The Tribunal partly allowed the appeal of the assessee in the judgment pronounced on 05.03.2025.