Loading judgment…
Facts
The appellant, The Malayala Manorama Co Pvt Ltd, filed its return for AY 2017-18. The Assessing Officer completed assessment under Section 143(3) and made additions totaling Rs. 7,97,923/- under Section 14A and Rs. 4,98,500/- for cash deposits made during demonetization, treating them as unexplained. The CIT(A) partly allowed the appeal, accepting the source of Rs. 4,10,000/- but confirming the addition of Rs. 88,500/-, and restricted the Section 14A disallowance. The assessee then appealed to the Tribunal.
Held
The Tribunal held that the addition of Rs. 88,500/- for cash deposits was unwarranted as the assessee's explanation (money returned from travel advances) was not disproven by the AO. Regarding the Section 14A disallowance of Rs. 7,97,923/-, the Tribunal reiterated that no such disallowance can be made in the absence of exempt income, directing the AO to delete both additions.
Key Issues
1. Whether the addition of Rs. 88,500/- for cash deposits during demonetization, explained as returned travelling advances, was justified. 2. Whether disallowance under Section 14A is permissible in the absence of exempt income.
Sections Cited
14A, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Learned Addl / Joint Commissioner of Income Tax (Appeals), Madurai (in short “CIT(A)”), dated 20/02/2025 for Assessment Year (AY) 2017-18.
Briefly the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of printing and publishing New Papers, Journals and other periodicals. The Return of Income for the AY 2017-18 was filed on 30/11/2017 declaring a total income of Rs. 146,22,84,160/-. Against the said return of income, assessment was completed by the Assistant Commissioner of Income Tax, Circle & TPS, Kottayam (hereinafter referred to as “AO”) vide order dated 23/12/2019 passed U/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”) at a total income of Rs. 146,35,80,590/-. While doing so, the AO made disallowance of Rs. 7,97,923/- U/s. 14A of the Act and also made an addition of Rs. 4,98,500/- being the cash deposits made in Specified Bank Notes (in short “SBNs”) during the demonetization period by rejecting the explanation of the assessee that the said cash deposits were made out of the cash collections on 09/11/2016 as the appellant does not come under the exempted categories.
Being aggrieved by the above assessment order, an appeal was filed before the CIT(A) contending that the cash deposits of Rs. 4,98,500/- was made during the demonetization period out of the cash collection of Rs. 4,10,000/- which was collected from agents and was deposited on 08/11/2016 in the late hours but reflected on 09/11/2006. The deposit amount of Rs. 88,500/- was made out of travelling advance returned by the officials of the appellant company. It was further submitted that this explanation was submitted to the Asst. Director of Income Tax (Inv.), Kottayam in response to the enquiry conducted by him. Thus, it is contended that no addition can be made on account of cash deposits as unexplained money by the appellant. As regards to the disallowance U/s. 14A of the Act, it is contended that resort to provisions of section 14A of the Act cannot be made without recording a finding that the appellant has incurred expenditure for earning exempt income. The CIT(A) accepted the explanation in respect of the source of cash deposit of Rs. 4,10,000/-. However, confirmed the addition to the extent of Rs. 88,500/-. With regard to the disallowance U/s. 14A of the Act, the CIT(A) has directed the AO to restrict the addition U/s. 14A to the extent of exempt income. Thus, the appeal filed by the assessee was partly allowed.
Being aggrieved by the order of the CIT(A), the appellant is in appeal before us.
When the appeal was called on, none appeared on behalf of the assessee despite issue of service of notice. Therefore, we dispose of this appeal after hearing the Ld. Sr. DR.
It is the contention of the appellant that the CIT(A) ought not to have confirmed the addition of Rs. 88,500/- being the cash deposits made during the demonetization period rejecting the explanation of the appellant that the cash deposit was made out of the money returned by the officials of the appellant company which was advanced for their travelling purposes. As regards to the disallowance U/s.14A of the Act, it is submitted that in the absence of exempt income no disallowance can be made.
On the other hand, the Ld. Sr. DR submits that the orders passed by the AO and the CIT(A) are well reasoned and therefore no interference is called for.
7. We heard the Ld. Sr. DR and perused the material available on record. The first Grounds of Appeal challenges the correctness of the decision of the CIT(A) confirming the addition of Rs. 88,500/- on account of cash deposits made during the demonetization period. The appellant had explained the source of the cash deposits by stating that the cash deposits were made out of the money returned by the employees / officials of the appellant company from the advances given for their travelling purposes. There is no material brought on record by the AO to disbelieve this explanation. Therefore, the AO ought not to have made any addition on account of the cash deposits of Rs. 88,500/- treating it as unexplained money of the appellant. Accordingly, we direct the AO to delete the addition of Rs. 88,500/- and thus, this Ground of Appeal is allowed.
The next Ground of Appeal challenges the addition of Rs. 7,97,923/- made U/s. 14A of the Act. It is the contention of the appellant that in the absence of any exempt income, no disallowance U/s. 14A of the Act can be made. The proposition canvassed by the appellant is now well settled and therefore, we direct the AO to delete the addition of Rs. 7,97,923/- made U/s. 14A of the Act. Accordingly, the appeal filed by the assessee stands allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 26th June, 2025.