TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 655
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....t, the learned CIT(A) has erred in confirming the action of Assessing Officer by sustaining the addition of Rs. 7,56,965/- u/s 14A of the Act. 3. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in partly confirming the action of Assessing Officer by making the disallowance of Rs. 11,35,955/- out of total disallowance of Rs. 17,30,151 /- u/s 40(a)(ia). 4. It is therefore prayed that the addition made by the Assessing Officer and partly confirmed by the CIT(A) may kindly be deleted. 5. The appellant craves leave to add or alter or delete any of the ground or grounds of appeal at the time of the hearing before Your Honour." 3. Brief facts, as discernible from the orders of lower authorities are that assessee filed return of income on 29.11.2014, declaring total income of Rs. 11,09,810/- and agriculture income of Rs. 1,13,250/- for rate purpose. The return of income was processed u/s 143(1) of the Income-Tax Act, 1961. Since the case was selected for scrutiny through CASS, and notice u/s 143(2) of the Act was issued on 18.09.2015, which was duly served upon the assessee on 26.09.2015. In response to the notices issued u/s 14....
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...., it was noticed that the assessee has made investment of Rs. 2,30,62,334/- to earn exempt income and shown exempt income from partnership firm, income from dividend and income from agricultural activity. Thus, assessing officer noted that assessee's claim for interest expenses of Rs. 18,08,065/- is relatable to exempt income. The assessee has not furnished any separate account for expenses incurred to earn exempt income. Therefore, assessing officer noted that section 14A of the I.T. Act applies in the assessee's case and claim of interest expenses is required to be disallowed u/s 14A of the I.T. Act, as per rule 8D of the Rules. Therefore, interest expenses of Rs. 7,56,965/- was disallowed under section 14A of the I.T. Act and added to the total income of the assessee. 7. Further, it was also noticed by the assessing officer that assessee has not deducted tax at source on interest expenses of Rs. 17,30,151/- u/s 194A of the I.T. Act. Therefore, assessee's claim for interest of Rs. 17,30,151/- was not allowable as deduction u/s 40(a)(ia) of the I.T. Act. Therefore, further show cause notice was issued, vide notice dated 02.12.2016, which is reproduced as under: "On perusal of y....
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....t the assessee has not deducted tax or deducted tax but not deposited tax into Central Government Account. Hence, the assessing officer observed that the claim of interest expenses of Rs. 17,30,151/- was not allowable as deduction u/s 40(a)(ia) of the I.T. Act. Therefore, the assessing officer made a disallowance of Rs. 9,73,186/- (after reducing of disallowance of Rs. 7,56,965/- u/s 14A - Rs. 17,30,151) and added to the total income of the assessee. That is, the assessing officer reduced the interest expenses of Rs. 17,30,151/- by the disallowance of Rs. 7,56,965/- u/s 14A of the Act. Therefore, assessing officer made total disallowance at Rs. Rs. 17,30,151/- (Rs.9,73,186 + Rs. 7,56,965). Since the assessing officer made a combined disallowance to the tune of Rs. 17,30,151/- therefore, these two grounds of appeal raised by the assessee are interconnected and mix, hence I shall adjudicate them together. 9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition of Rs. 7,65,965/- made by the Assessing Officer in respect of disallowance under section 14A of the Act and the disallowance under sect....
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....6,80,573.51 as per balance sheet as on 31.03.2014, therefore entire investments was made by the assessee, out of own funds of the assessee. Therefore, no addition should be made on account of interest expenses. However, the disallowance at the rate of 0.5% of average investments can be made. 12. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 13. I have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee. I note that the assessment year involved in the assessee`s case is the A.Y.2014-15 wherein old Rule 8D of the Rules, is applicable for disallowance under section 14A of the Act. The Rule 8D is amended by the Income Tax (Fourteenth Amendment) Rules, 2016, w.e.f. 02.06.2016, which is not applicable to the assessee under consideration. Section 14A of the Income-Tax Act, 1961, provides for disallowance of expenditure incurred in relation to earning of exempt income. The Central Board of Direct Taxes (CBDT) vide notification no. 43/2016 dated 2 June, 2016, has amended Rule ....
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....d mutual funds and it had not used borrowed funds for such purpose, the disallowance of interest expenses of Rs. 6,73,350/-, under section 14A of the Act, is to be deleted. Therefore, respectfully following the binding precedent, in the case of Bennett Coleman & Co. Ltd(supra), I delete the addition of Rs. 6,73,350/- made by the Assessing Officer in respect of interest disallowance under section 14A of the Act. 15. However, I direct the assessing officer to make the disallowance (addition) at Rs. 83,616/- (being 0.50% of average investment of Rs. 1,67,23,284/-) 16. In the result, ground No.1 raised by the assessee is partly allowed. 17. Regarding ground No.2 raised by the assessee, I note that assessee paid interest charges of Rs. 17,30,151/- to four different financial institutions without deducting tax u/s 194A of the Act. Since part of the interest amounting to Rs. 7,56,965/- was already disallowed u/s 14A, therefore, the assessing officer (AO) considered only the balance interest of Rs. 9,73,186/- (Rs. 17,30,151 - Rs. 7,56,965) for disallowance u/s 40(a)(ia) for non-deduction of tax at source. On appeal by the assessee, the ld CIT(A) has enhanced the addition from Rs. 9,73,1....