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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI PAWAN SINGH, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-2, Mumbai (‘ld.CIT(A) for short) dated 27.02.2015 and pertains to the assessment year (A.Y.) 2008-09.
The grounds of appeal read as under:
1. On the facts and in circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 2, Mumbai ["The CIT(A)"] erred in enhancing the assessment by Rs. 35,68,823/- by disallowing the entire interest expenditure u/s 14Aof the Income Tax Act, 1961 ("the Act") r.w.r. 8D(2)(i) of the Income Tax Rules, 1962 ("the Rules") as against the proportionate disallowance of interest of Rs. 9,36,453/- made by the Deputy Commissioner of Income-tax - 1(1), Mumbai ("the AO") u7s. 14A r.w.r. 8D(2)(ii) of the Rules without giving any Firestorm Electronics Corporation Pvt. Ltd. opportunity to the Appellant and without issuing the show cause notice of enhancement u/s. 251(2) of the Act. 1.1 The Appellant prays that the said enhancement of the assessment be held as void ab initio or otherwise bad in law and as such be liable to set aside. Without prejudice to the above, 2. The Learned CIT(A) erred in not appreciating the fact that the AO had found the contention of the Appellant to be correct and accepted in the Remand Report dated November 21, 2012 that no disallowance of interest u/s 14A of the Act would be made inasmuch as the said investments were made out of the assessee's owned funds. 2.1 The Appellant prays that it be held that no disallowance of interest be made u/s 14A r.w.r. 8D of the Act. Without prejudice to the above, 3. The Learned CIT(A) erred in disallowing the entire interest expenditure of Rs. 50,31,534/- u/r. 8D(2J(i) of the Rules on the alleged ground that the said interest on ICD had a direct nexus with the alleged investment in the shares of M/s. SPR Textiles Pvt. Ltd. ("STPL"). 3.1 He erred in not appreciating the fact that the Appellant was not holding any shares in STPL inasmuch as the said funds were utilised towards share application money in STPL as shown under the head "Loans & Advances". 3.2 The Learned CIT(A) further erred in not appreciating the fact that no exempt income was earned during the captioned assessment year from the said alleged investment in STPL and as such the said interest expenditure would not be relatable to the exempt income. 3.3 The Appellant prays that the said disallowance of interest of Rs. 50,31,5347- be deleted. Without prejudice to the above, 4. The CIT(A) erred in observing that the AO was duty bound to analyze the whole issue of interest expenditure for the purpose of disallowances. 4.1 The CIT(A) erred in not appreciating the fact that the AO had no jurisdiction to raise the issue of disallowance of interest expenditure u/s 36(l)(iii) of the Act. 4.2 The CIT(A) erred in not giving any finding on the issue relating to the disallowance u/s36(l)(iii) of the Act 4.3 The Appellant prays that it be held that no disallowance be made u/s 36(l)(iii) of the Act.
5. On the facts and in circumstances of the case and in law, the Learned CIT(A) erred in directing the AO to make the ad-hoc disallowance of other expenses of Rs. 1,00,000/- u/s. 14A of the Act. 5.1 The Learned CIT(A) failed in appreciating the fact that the provisions of Sec. 14A of the Act r.w.r. 8D of the Rules did not empower the AO to make any ad-hoc disallowance.
Firestorm Electronics Corporation Pvt. Ltd. 5.2 The Appellant prays that the said ad-hoc disallowance of Rs. 1,00,0007- be deleted. 6. The CIT(A) erred in confirming action of A.O. in levying interest u/s. 234B and 234C of the Act. 6.1 The Appellant prays that the levy of interest be deleted
In the present case, the ld. CIT(A) has made an enhancement of the disallowance u/s.14A of the Income Tax Act, 1961 (‘the Act' for short). At the threshold the assessee’s grievance is that proper notice for enhancement has not been given.
We have heard the ld. Departmental Representative. None appeared on behalf of the assessee. In our considered opinion, the issues raised can be adjudicated by hearing the ld. Departmental Representative and perusing the records. Section 251(2) of the Act provides that the Commissioner (Appeals) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.
Upon hearing, the ld. DR and perusing the records, we find that no notice of enhancement as such has been given by the ld. CIT(A). The ld. CIT(A) in his order has observed that “In this case, the assessee has been given adequate opportunity of hearing since the proposal to disallow interest on ICD would have the effect of enhancing the assessed income of the assessee.”
From the above, it is admitted that the ld. CIT(A) has not given a proper notice for enhancement. He has given a notice and has presumed that the assessee should have understood the same to be tantamount to a notice for enhancement. What prevented the Firestorm Electronics Corporation Pvt. Ltd. ld. CIT(A) to give a formal notice proposing the enhancement is not borne out of the record. We find that as per the mandate of statute, the assessee has an indefeasible right to receive a proper notice of enhancement. In our considered opinion, on the facts and circumstances of the case, in absence of proper notice of enhancement, the ld. CIT(A)’s order is not sustainable. Accordingly, we remit this issue to the file of the ld. CIT(A). The ld. CIT(A) is directed to consider the issue afresh after giving proper notice of enhancement to the assessee.
In the result, the assessee’s appeal is partly allowed.
Order pronounced in the open court on 06.09.2018