TaxTMI 
TaxTMI 
2017 (3) TMI 959
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....nd No. 4) by ignoring the submissions of AR (Letter dt. 18.01.2016) page 7 - 1st para that total Labour Charges received (Rs. 500 Lacs) was more than amount in 26 AS / AIR of Rs. 452 Lacs and major amount was reconciled except a small amount of Rs. 2,28,424, hence judgement of Hon'ble Mumbai Tribunal in the case of A.F. Furguson vide order dt. 17.10.2014 was applicable. 2. The Ld. CIT (A) erred confirming Interest disallowance of Rs. 22,687 (Ground No. 5) U/S. 14A even though the Ld. CIT (A) has deleted addition made by AO U/S. 36 (1) (iii) of interest Rs. 50,113 (Ground No. 1) because there was surplus interest free fund of Rs. 134 Lacs against Investment in Properties Rs. 5,45,000 & Shares Rs. 3,53,838." 3. Brief facts of the case are that the assessee is a partnership firm in the business of labour job work of heat treatment on ferrous metal items of various sizes. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of 1961 Act, the A.O. observed that there was a difference between the figures of income of labour charges as per figures as appearing in AIR information vide 26AS and income as reported in the assesee's books of accounts, wherein income of....
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....the Income-tax Rules, 1962:- 1 Amount of expenditure directly related to income which does not form part of total income. Nil II A= Amount of expenditure by way of interest not included in I above = 3209641 22687 B= Average value of investment which does not form part of total income (335337 +353838)/2 = 344588 C= Average value of total assets as appearing in balance sheet of the assessee as on 1st day and last day of previous year = (45447434+52054970)/2 = 48751202 Disallowance = AXB/C III 0.5% of average value of investment which does not form part of total income as referred in B above (0.5% of 344588 1723 TOTAL DISALLOWANCE 24410 Thus, A.O. worked out disallowance of expenditure to the tune of Rs. 24,410/- incurred in relation to earning of income which does not form part of total income as mandated u/s 14A of 1961 Act read with Rule 8D(2)(ii) and 8D(2)(iii) of Income-tax Rules, 1962, vide assessment order dated 20-03- 2013 passed by the AO u/s 143(3) of 1961 Act. 5. Aggrieved by the additions made to income by the A.O. vide assessment order dated 20-03-2013 passed by the AO u/s 143(3) of 1961 Act, th....
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....2006 and 3420/Mum/2006 , vide orders dated 28-05-2012 (reported in 2012(5) TMI 504 -ITAT Mumbai) , which contentions was rejected by the ld. CIT(A) who confirmed the additions made by the A.O. to the tune of Rs. 24,410/- towards disallowance of expenditure incurred in relation to earning of income which does not form part of total income as contemplated u/s 14A of 1961 Act read with Rule 8D(2)(ii) and 8D(2)(iii) of 1962 Rules , by holding that the assessee must have incurred some expenses to earn exempt income, vide appellate order dated 29-01-2016 passed by learned CIT(A). 7. Aggrieved by the appellate order dated 29-01-2016 passed by ld. CIT(A), the assessee filed second appeal before the tribunal. 8. With respect to the first issue, the ld. Counsel for the assessee submitted that the reconciliation statement reconciling the difference between income as reported in AIR information with income as reported in books of accounts , was duly submitted before the Revenue. The difference of Rs. 2,28,424/- could not be reconciled because of magnitude of transactions. The assessee contended that since it is small difference , additions made should be deleted. The ld. Counsel also rel....
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.... reflected in assesee's books of account , which was less by Rs. 2,28,424/- as reflected in assessee's books of accounts which led to under-reporting of income offered to tax as was contended by authorities below leading to additions being made in the hands of the assessee. We find that the assessee has produced the copies of ledger account as well AIR data base information as reflected in 26AS , wherein there is difference between the income reported between books of accounts and 26AS, to the tune of Rs. 2,28,424/- leading to under-reporting in the income offered for taxation. The decision of A F Ferguson and Co. (supra) relied upon by the assessee is distinguishable as the income reported in that case in books of accounts which was offered for taxation was higher than income as reported in AIR information data base, wherein there was no under-reporting to income offered for taxation by the said tax-payer. Further, in the said case, the taxpayer had contended that full and complete details of parties as were appearing in AIR information data base is not available, while in the instant appeal before us, the income reported in books of accounts which was offered for taxation to Reve....
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....s. 10,000/-. We are inclined to accept difference of Rs. 10,000/- and less between the income as reported in books of accounts and income as reported in form no 26AS keeping in view smallness of difference and difficulties faced in reconciling the same. Thus, this issue needs to be set aside and restored back to the file of the A.O. for de-novo determination of the issue on merits. The assessee is directed to produce all details and cogent evidences relevant to the matter before the A.O. in its defense. The AO shall grant opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. 11. With respect to the second issue, the ld. Counsel submitted that the grounds raised by the assesse is restricted to disallowance of expenditure towards interest of Rs. 22,687/- incurred in relation to earning of exempt income as was disallowed by the AO u/s 14A of 1961 Act read with Rule 8D(2)(ii) of 1962 Rules , which disallowance was confirmed by ld. CIT(A). It was submitted that the investment in shares was made by the assessee out of its own funds which were interest-free funds available to the assessee. The ld. Couns....