K.NAVARATHANMAL,GUDIYATHAM vs. ACIT, VELLORE
What did the Tribunal hold?
The Tribunal found that the Assessing Officer's and CIT(Appeals)'s assessment of investment in agricultural land and the conversion of a proprietorship to a private limited company were not properly considered. Therefore, the matter was remitted back to the Assessing Officer for fresh examination.
What were the facts?
The assessee's appeal concerns a disallowance made under Section 14A of the Income-tax Act, 1961, calculated as per Rule 8D. The Assessing Officer disallowed ₹8,14,353/-. The assessee argued that no investment was made in agricultural land during the year and that funds for share trading were their own.
What were the issues?
Whether the disallowance under Section 14A was correctly computed by the Assessing Officer and confirmed by the CIT(Appeals), considering the assessee's submissions regarding investments and business conversions.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 13, Chennai, dated 29.02.2016 and pertains to assessment year 2011-12.
The only issue arises for consideration is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short "the Act").
Shri B.R. Sudheendra, the Ld. representative for the assessee, submitted that the Assessing Officer disallowed a sum of `8,14,353/- under Rule 8D of Income-tax Rules, 1962. The Ld. representative submitted that no investment was made in the agricultural land during the year under consideration. According to the Ld. representative, the assessee was engaged in the business of share trading, gold jewellery and finance. The assessee has not claimed any expenditure for earning the agricultural income. What was disclosed in the return of income is only net agricultural income, therefore, according to the Ld. representative, there cannot be any disallowance for earning agricultural income. In the case of share trading, the assessee has utilized only his own funds and no expenditure was incurred. Therefore, the CIT(Appeals) is not justified in confirming the disallowance made by the Assessing Officer .
The Ld. representative for the assessee further submitted that the proprietorship of jewellery business was converted into private limited company and shares were allotted to the assessee without any investment. Therefore, according to the Ld. representative, it cannot be said that the assessee has invested his funds for the purpose of earning exempt income. On a query from the Bench whether the assessee has borrowed any loan, the Ld. representative submitted that loan was borrowed for the purpose of business but no borrowed loan was used for the purpose of earning the exempt income. Therefore, according to the Ld. representative, the disallowance made by the Assessing Officer, as confirmed by the CIT(Appeals), is not justified.
On the contrary, Shri V. Nandakumar, the Ld. Departmental Representative, submitted that the Assessing Officer computed the disallowance of `8,14,353/- by following the provisions of Rule 8D(2) of Income-tax Rules, 1962. Since the assessee has claimed that there was no expenditure was incurred for earning the exempt income, according to the Ld. D.R., the Assessing Officer has to compute the disallowance under Rule 8D(2). therefore, the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.
6. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims that no amount was invested in the agricultural land during the year under consideration. In fact, the Ld. representative for the assessee claims that the investment in the agricultural land was made 15-20 years ago. However, from the assessment order it appears that investment made by the assessee between 31.03.2010 and 31.03.2011 was `2,16,912/-. When the assessee claims that no investment was made in the agricultural land during the year under consideration, it is not known where the Assessing Officer found that the assessee has invested `2,16,912/-. The assessee has also invested a sum of `46,410/- in the H.A. Trust. In the business of gold jewellery, the Ld. representative for the assessee claims that the proprietorship business of the assessee was converted into a private limited company, therefore, there is no investment made by the assessee. These facts were not taken into consideration either by the Assessing Officer or by the CIT(Appeals). Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer after giving a reasonable opportunity to the assessee. Accordingly, the orders of the authorities below are set aside and the disallowance made by the Assessing Officer under Section 14A of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh and find out the investment made in the agricultural land and investment made in the H.A. Trust and investment made in the Ambalal Jewellers Vellore (P) Ltd. by the assessee and claim of the assessee that the proprietorship was converted into private limited company and thereafter decide the issue afresh, in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 23rd September, 2016 at Chennai.
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