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Facts
The assessee appealed against Ld. CIT(A) orders confirming disallowances under Section 14A (for exempt income expenses) and other business expenses, totaling Rs. 18,13,264/- and Rs. 1,07,25,681/- respectively, for assessment years 2013-14, 2014-15 & 2016-17. The Ld. CIT(A) had confirmed these additions, and the assessee challenged these confirmations.
Held
The Tribunal found that the Ld. CIT(A)'s orders were "non-speaking" and lacked proper reasoning for confirming the additions. Citing legal precedents requiring reasoned appellate orders, the Tribunal restored the issues back to the Ld. CIT(A) to pass a fresh, reasoned and speaking order, also granting a stay on demand and interest during this period.
Key Issues
Whether the Ld. CIT(A) erred in passing non-speaking and unreasoned orders while confirming disallowances under Section 14A and other expenses, and if such orders are legally sustainable.
Sections Cited
14A, 143(3), 250, 254(1), 220(2), Rule 8D
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI GEORGE MATHAN & SHRI SANJAY AWASTHI
आदेश / O R D E R Per Bench : These three appeals are filed by the assessee against the separate orders passed by the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, all dated 16.12.2024 for the assessment years 2013-14, 2014-15 & 2016-17, respectively. 2. Shri Subash Agarwal, Advocate appeared on behalf of the assesse and Ms. Roma Chaudhary, Sr. DR appeared on behalf of the revenue. 3. A perusal of the order of the ld. CIT(A) shows that in regard to the issues of invocation of Section 14A of the Act, ld. CIT(A) has confirmed the addition and in regard to the issue of disallowance of other expenses also, the ld. CIT(A) has confirmed the addition. The order of the ld. CIT(A) reads as under :-
2 ITANos.235-237/Kol/2024
This appeal is filed against the order of the DCIT, Circle-1, Siliguri, passed u/s. 143(3), dated 21.12.2016.
The ground no. 1 objects to disallowance of Rs. 18,13,264/- u/s. 14A r.w. Rule 8D. Under "Other Income", the assessee has declared exempt dividend income of Rs.31.62.733/- from investment in quoted/unquoted mutual funds and shares of subsidiaries companies aggregating Rs. 34.97.13.733/-, No expense relatable to such exempt income was offered for taxation as per computation of income. Therefore, the same is determined by invoking Section 14A read with Rule BD of the I. T. Rules 1962 in the following manner: COMPONENT(1): Not applicable.
3 ITANos.235-237/Kol/2024 COMPONENT(i): (A) x (B)/ (C) (A)- amount of expenditure by way of interest incurred during the year (B)- the average of value of investment, income from which does not form part of total Income, as appearing in balance sheet on 18t day and last day of the previous year (C)- the average of total assets as appearing in balance sheet on 1 st day and last day of the previous year = Rs.2,93,846/- x Rs.32,86,87,508/- divided by Rs 56,87,15,912/- = Rs.1,69,827/- COMPONENT(iii) the amount equal to % % of average of value of investment, income from which does not form part of total income as appearing in balance sheet on 15t day and last day of the previous year. = %% of Rs.32,86,87,508/- Rs. 16,43,437/- Therefore, the aggregate of expenses as per Component(ii) & (iii) deemed to be incurred for earning exempt income comes to Rs. 18,13,264/-, Accordingly, the said expense relatable to exempt dividend income is added back to the total income of the assessee. The addition of Rs. 18,13,264/- is confirmed.
The ground no. 2 objects to disallowing expenditure of Rs. 1,07,25,681/-. Examination of the trading and profit and loss account of the assessee for the F.Y.2012-13 revealed that the turnover of the assessee INCREASED MARGINALLY during the current year i.e. F.Y.2013-14. Item FY 2011-12 FY 2012-13 FY 2013-14 Remarks Turnover 74,05,67,213/- 64,83,97,780/- 65,04,36,513/- The turnover of the assessee has slightly increased during the year However, on close examination of the expenses claimed it has been observed that the assessee has claimed expenses in some cases lower than that claimed in previous years. But on further scrutiny it revealed. that there has been various change of nomenclature of expenditure head to create an illusion which apparently appears to be in consonance with the turnover. However, the facts are on the contrary. The assessee produced the ledgers but no supporting evidences in form of bills and vouchers were produced for examination. These facts lead to a clear bonafide belief of the revenue about the malafide intention of the assessee to prevent a clear and complete scrutiny of its account in a similar modus operandi as was done during the course of scrutiny for the A.Y. 13-14. The percentage of increase in expenses under the above two broad head is 75.85% despite the slight increase in turnover by Rs.20,38,733/- during the year. The turnovers of F.Y.2012-13 and 13-14 are 64,83,97,780/- and 65,04,36,513/-respectively. From the above table it is amply evident that abrupt percentile increase occurred on the expenditure during the F.Y.2013-14.In view of the facts and 4 ITANos.235-237/Kol/2024 circumstances of the case, the AO reasonably disallowed a proportionate expenditure described below; considering them not to have been incurred for the purpose of the business of the assessee for the year or in other way round as excess expenditure claimed with an intention to reduce the net profit of the year with ultimate intention to decrease the tax liability for the year. The calculation of disallowance is based reasonably at 10% of other expenses under the broad head Other expenses which amounts to Rs. 10,72,56,807/-out of which Rs.1.07.25,681/- is disallowed and added to the total income of the assessee. The addition of Rs. 1,07,25,681/- is confirmed.
The appeal filed by the assessee is dismissed. Commissioner of income-tax (Appeals) Income Tax Department 4. The reasons for confirmations of the additions are not coming out of the order of the ld. CIT(A). Even for the assessment year 2017-2018 and A.Y.2013-2014, the order of the ld. CIT(A) is unfortunately non-speaking. The ld. Sr. DR was also unable to explain as to what was being proposed by the ld. CIT(A) in his order. Obviously an appellate authority is expected to apply his mind and give a reasoned order when adjudicating an appeal. The Tribunal has to consider the findings of the ld. CIT(A) as it is the order of the ld. CIT(A) that is the subject matter of the appeal before the Tribunal. The findings of the ld. CIT(A) as extracted above, lack any reasoning whatsoever. It is being reiterated in numerous decisions of various Hon’ble High Courts and even the Hon’ble Apex Court that an appellate order should be a speaking order and a reasoned order. Unfortunately a perusal of the order of the ld. CIT(A) clearly shows that the principles enunciated in such decisions have not found weight with the ld. CIT(A). This being so, the issues in this appeal are restored to the file of the ld. CIT(A) for passing a reasoned and speaking order on the issues in this appeal.