The Delhi ITAT has quashed the addition against Nainital Bank Ltd by ruling that the investment is made from the interest-free funds available with the assessee and no question of any addition under Rule 8D(2)(ii) arises.
During the scrutiny of Assessment, Assessee failed to disclose the method used for arriving at the disallowance made under section14A of the Act. It resulted into the failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment and that the disallowance warranted under Rule 8D(2)(ii) of the Income Tax Rules, 1962.
Assessing Officer proceeded to reopen the assessment and passed orders for making additions. Being aggrieved with the action of AO, Assessee carried the matter in appeal before CIT (A) wherein CIT(A) held that the reopening of the assessment was valid but, interest free funds of the assessee are far exceeding the investment during the relevant years, question of invoking the provisions under Rule 8D directly and mechanically does not arise.
Accordingly, CIT (A) directed the AO to delete the addition made under section rule 8D (2)(ii) Of the Rules. Challenging the addition deleted by Lower Appellate Authority, Revenue preferred an appeal before this tribunal.
The bench heard the rival submission, perused the records and various cases cited by Revenue and observed that AO was well aware of the fact that Assessee earning tax-free income and the applicability of Rule 8D.
While deleting the Addition, the Tribunal bench comprising of Judicial Member K. Narasimha Chary and Accountant Member N.K. Saini said that it is not permitted AO to say that the income escaped assessment because assessee did not reveal the method of arriving at the disallowance made under Section 14A of the Income Tax Act during the assessment proceedings so far facts and figures revealed in the return of income.
The tribunal bench remitted the decision in CIT vs. HDFC Bank Ltd wherein CIT (A) observed that when the own funds of the assessee far exceeds the investment, the presumption is that the investment is made from the interest free funds available with the assessee and no question of any addition under Rule 8D(2)(ii) arises.
Finally, bench referred the reasons recorded in the preceding paragraphs ITA Nos.5767 & 5768/Del/2016 preferred by the assessee stand allowed and held that the addition made by the AO under Rule 8DE (2)(ii) of the Income Tax Rules cannot be sustained.
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