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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against order passed by the learned Commissioner of Income Tax (Appeals)- 3, Chennai, dated 07.01.2019 and pertains to assessment year 2012-13.
The assessee has raised following grounds of appeal:-
“1. The Commissioner of Income-tax (Appeals) erred in confirming the assessment summarily for the assessment year 2012-13.
2. The Commissioner of Income tax (Appeals) erred in holding that the appellant neither made any personal attendance nor made any submissions in support of the grounds taken in the impugned appeal. This view of the Commissioner of Income-tax (Appeals) is contrary to the facts.
The Commissioner of Income-tax (Appeals) ought to have seen that when the appeal was fixed for hearing, the appellant’s Counsel appeared before the Commissioner of Income-tax (Appeals) and requested for time. Admittedly, the request for adjournment was not rejected. Hence the presumption to the contrary and confirmation of the order of the Assessing Officer is not justified.
The Commissioner of Income-tax (Appeals) erred in holding that the appellant is dodging the proceedings by taking adjournments repeatedly for the last couple of years without any compliance either in the form of personal attendance or written submissions. This view of the Commissioner of Income- tax (Appeals) is stoutly denied and opposed to facts.
The Commissioner of Income-tax (Appeals) erred in holding that from the conduct of the appellant it is quite evident that the company is no more interested in pursuing the appeal. This observation of the Commissioner of Income-tax (Appeals) is totally uncalled for.
The Commissioner of Income-tax (Appeals) erred in holding that the appellant has nothing to say in support of the grounds raised in this appeal. This view of the Commissioner of Income- tax (Appeals) is based on suspicions and surmises and without any valid materials.
The Commissioner of Income-tax (Appeals) erred in relying on the decision of Susham Singla Vs. Assistant Commissioner of Income-tax in [2014] 51 Taxmann.com 536 (Chandigarh Trib). The said decision will not apply to the facts of this case and are distinguishable on facts.
The Commissioner of Income-tax (Appeals) erred in confirming the invoking of the provisions of section 14A r.w. Rule 8D of the Income-tax Rules. The confirmation of the invoking of the aforesaid section is without any justification.
The Commissioner of Income-tax (Appeals) failed to note that the Income-tax Officer had pre-determined / pre-judged the issue, which can be established upon perusal of the show cause notice. Further, the assessment was completed in a biased manner without appreciating the facts in proper perspective.
The Commissioner of Income-tax (Appeals) erred in confirming that the appellant took loan of Rs.97,14,221/- during the financial year 2011-12 and invested in unquoted shares of MIs. Jhaver Associates Private Limited and claimed interest expenditure in the Profit and Loss Account. This view of the Commissioner of Income-tax (Appeals) is contrary to the facts. 11.The Commissioner of Income-tax (Appeals) failed to note that the amount borrowed by the appellant was invested in the day-to-day activities of the business and was never invested in shares as presumed. Hence the conclusion to the contrary and confirmation of the addition is not justified.
The Commissioner of Income-tax (Appeals) failed to note that there is absolutely no material on record to substantiate that the appellant borrowed the amount for investment in unquoted shares of N/s. Jhaver Associates Private Limited. Insofar as there is no material either documentary or circumstantial to substantiate the aforesaid investment, the confirmation of the addition of Rs.5,08,352/- invoking the provisions of section 14A r.w. Rule 8D of Income-tax Rules is not in accordance with Law.
The Commissioner of Income-tax (Appeals) failed to note that the appellant earned gross receipt of Rs.50,58,098/-, which includes interest income of Rs.25,88,883/- as against interest payment of Rs.28,89,684/- during the financial year 2011-12 and the interest payment of Rs.28,89,684/- for the amount borrowed by the appellant during the earlier years for the purpose of investing in various projects and such borrowed funds was in turn advanced for other purposes in which the appellant earned interest gain of Rs.28,89,684/-. Hence the confirmation of the invoking of the provisions of section 14A of the Income-tax Act is without jurisdiction.
The Commissioner of Income—tax (Appeals) erred in confirming that the appellant is not able to prove substantially that investments are made out of share capital and share premium during the year. This view of the Commissioner of Income tax (Appeals) is arbitrary and untenable.
The Commissioner of Income-tax (Appeals) ought to have seen that a perusal of the funds flow statement would reveal beyond doubt that there was corresponding / adequate credit in the bank account, which can be correlated to the share application money/premium received. Hence the confirmation of the addition of Rs.5,08,352/- is liable to be deleted.
The Commissioner of Income-tax (Appeals) erred in confirming that the appellant debited the interest amount in profit and loss account out of borrowing used for the purpose of investment in shares. This view of the Commissioner of Income tax (Appeals) is based on conjectures and without any valid materials. Consequently, the confirmation of the invoking of the provisions of section 14A r.w. Rule 8D of the Income-tax Rules clearly shows that he has failed to apply his mind to the facts of the case in proper perspective particularly since no amount was borrowed for the purpose of investment in shares.
The order of the CIT (Appeals) summarily confirming the order of the Income-tax Officer without affording the appellant reasonable being heard is erroneous, illegal, contrary to the provisions of the Income tax Act, violative of the principles of natural justice and is liable to be set aside.
3. Brief facts of the case are that the assessee is engaged in the business of consultation and property development filed its return of income for the assessment year 2012-13 on 28.09.2012 declaring total income of Rs.1,14,930/-. The assessment has been completed u/s.143(3) of the Income Tax Act, 1961 on 28.03.2015 and determined total income at Rs.6,23,282/- by making additions towards disallowance u/s.14A r.w. Rule 8D of I.T. Rules, 1962, at Rs.5,08,352/-. The assessee carried the matter in appeal before learned CIT(A), but, neither appeared nor filed any details to justify its case, which is evident from the fact that although, the learned CIT(A) had given nine opportunity of hearing on various dates, the assessee not availed opportunity of hearing provided by the learned CIT(A) to pursue its case and justify its case.
Therefore, left with no option, to proceed with appeal filed by the assessee, the learned CIT(A) dismissed appeal filed by the assessee for non-prosecution. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
4. None appeared for the assessee . We have heard learned DR and perused materials available on record along with orders of the authorities below. The only addition made by the Assessing Officer is disallowance of expenses relatable to exempt income u/s.14A of the Income Tax Act, 1961, by invoking Rule 8D of I.T.Rules, 1962. The Assessing Officer has not disallowed direct expenses relatable to exempt income, however, quantified interest expenses under Rule 8D(2)(ii) and other expenses @ 0.5% of average value of investments under Rule 8D(2)(iii) of I.T. Rules, 1962, and determined total disallowance of Rs.5,08,352/-. Although, the Assessing Officer has determined disallowance of expenses relatable to exempt income under Rule 8D of I.T.Rules, 1962, but assessment order is silent about exempt income earned by the assessee for relevant assessment year. It is well established principle of law that if there is no exempt income for relevant assessment year, then there cannot be any disallowances of expenses relatable to exempt income u/s.14A of the Act. This principle is supported by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt.Ltd. (2018) 95 taxmann.com
In this case, on perusal of the order passed by the Assessing Officer, there is no observation with regard to exempt income earned for relevant assessment year. Even before the learned CIT(A), although the assessee did not appear before the learned CIT(A), but the learned CIT(A) has disposed off appeal filed by the assessee on technical grounds for non-prosecution of appeal, without discussing issue of disallowance of expenses u/s.14A of the Act. Therefore, considering facts & circumstances of this case, we are of the considered view that the issue needs to go back to the file of the Assessing Officer to reconsider the issue in light of our observations hereinabove. The Assessing Officer is directed to reexamine the issue in light of dividend income earned by the assessee for relevant assessment year, to determine disallowance of expenses relatable to exempt income. In case there is no exempt income for relevant assessment year, then Assessing Officer is directed to delete additions made towards disallowance of expenses u/s.14A of the Act.