Loading judgment…
Facts
The appellant contested additions made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). These included disallowance under Section 14A, computation of notional rent, unexplained cash credit, and issues related to AIR entries and unexplained expenditure.
Held
The Tribunal held that disallowance under Section 14A cannot be made if the assessee does not claim any expenditure against exempt income. Additions related to notional rent and unexplained expenditure were deleted or remitted. The issue of Section 54F was remitted for fresh examination.
Key Issues
Whether disallowance under Section 14A is sustainable without expenditure claim and if additions related to notional rent and unexplained expenditure are justified.
Sections Cited
14A, 8D, 54F, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “E” Bench, Mumbai.
Before: Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM)
The first ground relates to disallowance under section 14A to the extent of Rs. 1,18,543/- by the Ld. AO, as he held that Rule 8D is to be pressed into service and the expenditure relating to exempt income should be disallowed. This issue was dealt by the Ld. AO at para 4, in the assessment order. The appellant earned an exempt income of Rs. 35,335/- including dividend of Rs. 441/-. During the assessment proceedings, the Ld. AO requested the appellant to file the details of income relating to earning the exempt income and the appellant has stated that no expenditure was incurred to earn this exempt income. The Ld. AO is of the view that the ratio of Godrej and Boyce 328 ITR 81 (Bom) is applicable to the appellant and computed the disallowance under section 14 of the Act at Rs. 1,18,543/- as mentioned in the assessment order. The Ld. CIT(A) confirmed the disallowance of expenditure under section 14A of the Act for the reasons mentioned in his order.
_icann
3 Krishnagopal Tilakraj Kapoor
Aggrieved by the disallowance/confirmation of the addition of Ld. AO/Ld. CIT(A), the appellant filed the grounds as mentioned in 1st page of this order. Before the Bench, the Ld. AR of the appellant has argued on the following lines and requested the Bench to delete the addition made under section 14A of the Act :- a) The appellant has not incurred any expenditure with respect to earning exempt income. b) The Ld. AO has not recorded any satisfaction regarding invoking section 14A/Rule 8D. c) The appellant has not claimed any expenditure as he does not have any business income. The sources of income of appellant are –income from salary, income from house property, capital gains and income from other sources. The appellant has charged interest expenditure to his personal capital account and not claimed any expenditure in the profit and loss account –actually, there is no profit and loss account because the appellant does not have any income from business/profession. d) Appellant’s own funds are more than the amounts of investment made in securities earning tax free income. e) Disallowance under section 14A of the Act should be restricted to exempt income. For the A.Y. 2014-15, the Revenue has restricted the disallowance to exempt income and the same should be followed.
For all these propositions, the Ld. AR of the appellant relied on several cases-law while filing written submission and arguing before the Bench. After considering all these arguments, the Bench is of the opinion that unless the appellant claims any expenditure against the exempt income, provisions under section 14A read with Rule 8D cannot be invoked and no addition can be made as held by Mumbai Tribunal in the case o Sachin Tendulkar 163 ITD 65 (Mum) and Merck Specialties Ltd. 88 Taxman.com 338 claimed by interest expenditure against the exempt income of Rs.
4 Krishnagopal Tilakraj Kapoor 35,494/-, being interest from PPF and the interest expenditure was debited to his personal account. Hence, the disallowance under Rule 8D2(ii) and 8D(2)(iii) to the extent of Rs. 1,18,543/- cannot be made and the additions are deleted. The disallowance to the extent of exempt income claimed under the head, “Dividend Income” of Rs. 441/- only is upheld.
4. The second addition made by Ld. AO relates to determination of annual ratable value and deemed rental income from properties to the extent of Rs. 8,80,175/-. The Ld. AO made this addition because the Ld. AO opined that there are two flats at Safal Twin Apartments at Chembur. During the appeal proceedings, the Ld. CIT(A) remanded the matter to the Ld. AO and directed him to send a report to find out whether the appellant has two flats or one flat. The Ld. AO deputed his Inspector of Income Tax who gave a report that even though there are two separate numbers to the flats, they were combined into one, interlinked passages inside and a single entry/exit and only kitchen was there. In these two flats combined into one, appellant’s family members are only living, the Inspector of Income Tax has mentioned. As this combined unit is self-occupied by appellant family, bifurcating it into two flats and computing deemed/notional rent for another part of this unit, is unjustified, argued the Ld. AR of the appellant. Since the Departmental Inspector himself gave a report that it is a single unit, computation of deemed rental income for one part of it is not proper, it was submitted by Ld. AR of the appellant the Ld. CIT(A) simply confirmed the addition without taking cognizance of Inspector’s report.
The Ld. DR relied on the orders of Ld. AO and Ld. CIT(A).
After hearing both parties it is decided that the deemed rental value computation for one part of this unit where appellant is residing alongwith family, is deleted because the report of Inspector of Income Tax is clear that both units of flat were self occupied.
5 Krishnagopal Tilakraj Kapoor
Ld. AR of the appellant filed an additional ground before ITAT which relates to the denial of claim under section 54F of the I.T. Act. The Ld. AR of the appellant relied on NTPC Ltd. and other decisions for the proposition that any disallowance made by Ld. AO and if the issue was dealt in the assessment order and if no further material is required, an additional ground relates to disallowance can be raised before the ITAT for the first time.
The Ld. AO has denied the claim of section 54F of the Act to the appellant as there are two separate units in Safal Twin apartments. But, as mentioned in paragraph 2 of this order, the Ld. AR of the appellant has argued and relied on the report of Inspector of Income Tax, in which it was stated that even though two separate numbers are given, it was a combined unit and appellant’s family is only residing in it. Hence, it was argued that appellant is entitled to deduction under section 54F(1) of the I.T. Act.
After taking into consideration the submissions of Ld. AR of the appellant, it is observed that the appellant/assessee has not challenged this disallowance/addition before Ld. CIT(A). Secondly, in paragraph 3 of the assessment order, the Ld. AO has denied the claim of section 54F of appellant as no particulars were filed. Since this issue was not examined by Ld. AO/Ld. CIT(A), the same is remitted back to the file of Ld. AO for fresh examination. The AO is directed to give an opportunity to the appellant and pass an order accordingly to law.
The next ground of appeal relates to addition of Rs. 20 lakhs by the Ld. AO as the appellant has not responded to the query of AO. The appellant was requested to provide the full address, PAN, bank account details to examine the genuineness of loans taken by appellant. It is observed from paragraph 7 of the assessment order, the appellant has not provided these details and hence addition was made under section 68 of the Act. The Ld. CIT(A) confirmed the addition.
6 Krishnagopal Tilakraj Kapoor
Aggrieved by the addition, the Ld. AR of the appellant contended before the ITAT that PAN card of creditors was provided before Ld. AO, but the bank statements were not produced before the AO and Ld. CIT(A). But, in the paper book, page 20, it was mentioned that the same were provided before the ITAT. Fact remains that full particulars of lenders, bank statement of lenders were not provided for examination before the AO and Ld. CIT(A). Admittedly, they were filed before the ITAT for the first time. Be that as it may, the Ld. AO and Ld. CIT(A) gave a categorical finding that no specific details were filed relating to lenders. In view of the same, the Bench decides to remit the issue back to the file of Ld. AO for examination of genuineness of creditors.
The last addition made by Ld. AO relates to unexplained expenditure. At paragraph 8 of assessment order, it was mentioned that the appellant failed to submit the reconciliation of amounts appearing in the AIR information and hence an amount of Rs. 55,150/- was added by the Ld. AO. The Ld. CIT(A) also confirmed the addition because there was no explanation by appellant. (page 21 of appeal order).
During the appellate proceedings before the ITAT, the Ld. AR of the appellant submitted that the appellant could not reconcile the income and related TDS, as reflected in AIR information because the transactions were not related to the appellant. But, there was no response before lower authorities in this regard also, as mentioned in their orders. Hence, this issue is also remitted to the file of the AO. The Ld. AO is directed to give an opportunity and take action as per law.
The appeal of the appellant is partly allowed as above for statistical purposes.
Order pronounced in the open Court on 05/05/2025.
7 Krishnagopal Tilakraj Kapoor