SHREE VYANKATESHWAR ENGINEERING PVT. LTD.,,AHMEDABAD vs. THE DY. CIT, CIRCLE-4(1)(2),, AHEMDABAD

Registry has pointed out that ITA No.2599/Ahd/2017 is time barred by 19 days. In order to explain the delay, the assessee filed application for condonation of delay. The orders of the ld.CIT(A) for the Asstt.Years 2013-14 and 2014-15 were received on 6.9.2017 and 27.9.2017. The concerned person in the office of tax consultant took note of the order of the receipt for the Asstt.Year 2014-15 which is 27.9.2017 and

As far as Asstt.Year 2013-14 is concerned, the assessee has filed an appeal before the ld.CIT(A) on 10.3.2016. The ld.CIT(A) dismissed the appeal by observing that w.e.f. 1.3.2016, the assessee was required to submit appeal electronically whereas he has filed it manually. On account of this lapse without adjudicating the appeal on merit, the ld.CIT(A) has dismissed the appeal. This new scheme has been introduced w.e.f. 1-3-2016 and the assessee has filed appeal on 10.3.2016. Later on it has complied with amended provision. To our mind, being a new scheme, the ld.CIT(A) ought to have entertained the appeal of the assessee and decided it on merit instead of dismissing it on technical ground. Therefore, we set aside the order of the ld.CIT(A) and remit all the issues to the file of the ld.CIT(A) for adjudication on merit.

As far as ITA No.2600/Ahd/2017 is concerned the only grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.8,21,147/- which was added by the AO under section 14A of the Income Tax Act read with rule 8D of the Income Tax Rules, 1962.

Brief facts of the case are that the assessee has field its return of income on 30.9.2014 declaring total loss at Rs.62,44,875/-. Return of the assessee was selected for scrutiny assessment and on scrutiny of the accounts it revealed that the assessee has shown tax free income under section 10(34) at Rs.6,16,533/-. The ld.AO confronted the assessee to

With the assistance of the ld.reprsentatives, we have gone through the record carefully. The stand of the assessee is that no disallowance out of interest expenses ought to be made. It has also contended that while working disallowance towards administrative expenses, the AO took into consideration total investment instead of investment which yielded tax free income. We find that the ld.CIT(A) has observed that activities of the assessee are under common management, bank accounts are also common and shareholders’ fund are in negative. Hence, it is to be construed that interest bearing funds must have been used by the assessee for earning tax free income. Contrary to this finding, the ld.counsel for the assessee demonstrated that the assessee has been maintaining separate accounts and under the investment account it has accumulated resources of Rs.56,28,064/- as on 31.3.2014 as against the share investment of Rs.47,15,324/- whose details are available on page

On due consideration of the above facts and circumstances, we find that complete details have not been placed on record. There is no dispute with regard to the proposition that sub-section (2) of section 14A contemplates that expenditure relatable to the earning of tax free income deserves to be disallowed. The AO is required to examine the accounts of the assessee, and how the assessee itself has worked out the disallowance of expenditure relatable to earning of tax free income. If he is not satisfied with the accounting treatment given by the assessee, then he can proceed to disallow the expenditure with help of formula provided in Rule 8D. In the present case, the AO though recorded his dissatisfaction , but from the finding of the AO as well as of the CIT(A), it nowhere reveals as to how they have dealt with the accumulated reserve of Rs.56,28,064/-. If the assessee has been maintaining separate accounts for investment and manufacturing activities, then these accounts ought to have been examined for the purpose of identifying activity in each year. We find that observation of negative balance in reserve and surplus of share application money is concerned that would arise only if the reserves and surplus of both the activities are taken together for the purpose of grouping. Considering this aspect, we deem it appropriate that this issue deserves to be remitted back to the file of CIT(A) because identical issue is required to be adjudicated in the Asstt.Year 2013-14 as well. The ld.CIT(A) will be able to examine the disallowance requires to be worked out for the purpose of 14A in both the years. It will give uniformity as well as consistency on the common

In the result, both appeals of the assessee are allowed for statistical purpose. Pronounced in the Open Court on 7th May, 2019.