M/S SHARMILA SRIRAM,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-5(2)(1), BANGALORE

The assessee has raised several grounds but the grievances are three. First grievance is about disallowance of Rs. 87,177/- u/s 14A. The second grievance is about disallowance of Rs. 159,240/- out of interest expenditure and the third grievance is about disallowance of Rs. 746,358/- also out of interest expenditure.

Heard both sides. The main thrust of the arguments of the learned AR of the assessee was on this that several arguments of the assessee were considered by CIT (A) before deciding various issues raised before him. For example, he pointed out that this contention was raised before CIT (A) that the AO has made disallowance u/s 14A without recording any satisfaction and without rejecting the claim of the assessee before the AO that no expenditure was incurred for earning dividend income but in spite of a specific query of the bench, he could not bring any evidence on record that any such claim was made by the assessee before the AO that expenditure was incurred for earning dividend income. From the orders of the authorities below also, this is not coming out that any such claim was made by the assessee before the AO. This was also submitted by him that the working of average investment is also incorrect. He also submitted that some investments are in co operative societies and the dividend from them is not exempt and therefore, the same has to be excluded. Hence, in my considered opinion, under these facts, the issue has to go back to CIT (A) for a fresh decision by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides and after considering the entire submissions of both sides. I order accordingly.

Similarly, in respect of disallowances out of interest expenditure, it was submitted that the first such disallowance of Rs. 159,240/- in respect of advances for some agricultural lands, learned AR of the assessee submitted that such advances were given on 24.12.2005 as noted by CIT (A) also in Para 7 of his order. He also submitted that on page 7 of his order, learned CIT (A) has reproduced the submissions of the assessee in this regard, as per which, this was also a submission that these advances were given in F. Y. 2005 – 06 out of interest free funds and several judgments were cited in support of this contention that under these facts, no disallowance should be made out of interest expenditure because the assessee had sufficient interest free funds in excess of such advances. He submitted that learned CIT (A) has not made any decision on this aspect also.

Regarding the second disallowance out of interest expenditure in respect of advances to some relatives, it was pointed out by the learned AR of the assessee that this contention was also raised before CIT (A) that no such disallowance is called for in view of availability of interest free funds and even if some disallowance is to be made, the same should be in respect of net debit balance after setting of the credit balance of the same party but there is no decision by CIT (A) on these aspects also. Under these facts, I feel that the issues regarding both these disallowances out of interest expenditure also, the matter has to go back to CIT (A) for a fresh decision by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides and after considering the entire submissions of both sides. I order accordingly.

In the result, the appeal of the assessee is allowed for statistical purposes.