IN INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA No.3604/M/2015 (AY 2009-2010) Mr. K.S. Kartikeyan, Income Tax Officer Flat No.6/106, Vaibhav, 22(2)(1), Vs. Chedda Nagar, Chembur, 4 th Floor, Tower No.6, Vashi Mumbai 400 089. Rly. Stn. Bldg, Vashi, Navi Mumbai 400 703. PAN : ABOPK0556A (Appellant) .. (Respondent) Appellant by : Shri Bharat Patel Respondent by : Shri O.P. Meena, CIT-DR Date of Hearing : 10.08.2016 Date of Pronouncement : 30 .09.2016 ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by assessee on 11.6.2015 is against order of CIT (A)-25, Mumbai dated 4.3.2015 for assessment year 2009-2010. In this appeal, assessee raised following grounds which read as under:- 1. On facts and circumstances of case and in law, Ld CIT (A) erred in partly confirming additions and / or disallowances made by AO in order under section 143(3) of Act. 2.(a) On facts and circumstances of case and in law, Ld CIT (A) erred in confirming addition of Rs. 3,45,439/- made by AO on account of difference in stock as unexplained investment under section 69 of Act. (b) Without prejudice to above, if addition of aforesaid difference in value of stock is upheld, then consequent income on account increase in value of closing stock as 31.3.2008, if any, cannot be considered for taxability in AY 2009-2010 and may be considered in assessment year 2008-2009. 3. (a) On facts and circumstances of case and in law, Ld CIT (A) erred in confirming disallowance of Rs. 1,20,551/- u/s 14A of Act read with Rule 8D of IT Rules, 1962. (b) Without prejudice to above, disallowance of expenses under section 14A of Act read with Rule 8D of Rules cannot exceed expenditure actually incurred by appellant limited to Rs. 337/-. 4. Without prejudice to above, on facts and circumstances of case and in law, Ld AO erred in not setting off undisputed brought forward business loss of Rs. 5,98,223/- of AY 2006-07 as per section 72 of Act against aforesaid alleged additions / disallowances. 5. On facts and circumstances of case and in law, AO erred in calculating levy of interest of Rs. 1,28,688/- u/s 234B of Act. 2 2. Briefly stated relevant facts of case are that assessee filed return of income declaring total income of Rs. 20,34,260/-. Assessee is engaged in share trading activity. In assessment proceedings u/s 143(3) of Act, assessed income was determined at Rs. 30,71,370/-. AO made various additions and disallowances. On appeal, CIT (A) confirmed same. Aggrieved with same, assessee filed present appeal. 3. In this appeal, assessee raised three issues in grounds. In this regard, Ld AR submitted that issues relating to grant of credit of taxes paid was already met by AO vide rectification proceedings. Accordingly, this issue is dismissed as such. Rest of issues for adjudication are as under:- (1) Addition of Rs. 3,45,434/- on account of closing stock; (2) Denying set off of loss of Rs. 80,143/- and (3) Disallowance of u/s 14A r.w. Rule 8D(2)(iii) of IT Rules, 1962. 3.1. issue wise adjudication is undertaken in following paragraphs of this order. 4. 1st issue relates to addition of Rs. 3,45,434/-. On this issue, on facts, I find closing stock as on 31.3.2008 is Rs. 29,52,514/- and opening stock as on 1.4.2008 is Rs. 32,97,953/-. Obviously, figure for last year is less. Assessee explained this discrepancy stating that some shares were not entered in closing stock mistakenly. Ignoring assessee s submission which revolves around inadvertent mistake , AO made addition of same in this year and not in earlier AY 2007- 2008. Assessee rectified said closing stock account of last year and filed same before AO. But same was not accepted. Matter travelled to first appellate authority. After considering submissions of assessee, CIT (A) confirmed same. Aggrieved, assessee is in appeal before Tribunal. 5. During proceedings before Tribunal, it is submission of Ld Counsel for assessee that said addition is bad in law. He further submitted that AO ignored fact that books of account for year under consideration is proper. figures given in return of income for earlier year are erroneous, which are now corrected. Ld AR also mentioned that addition, if any, is required to be made in earlier AY 2008-2009 and not in this AY 2009-2010 as mistake is in closing stock account of earlier year and not in this year. 3 6. On perusal of relevant facts and figures and after considered arguments and written submission of assessee, I find, mistake in closing stock account is relevant for AY 2008-2009 and not in AY under consideration. On this reasoning itself, assessee is entitled to relief. I order accordingly and direct AO to delete this addition. Thus, 1st issue is allowed as well as relevant grounds are allowed. 7. 2nd issue relates to loss of Rs. 80,143/-. In return of income assessee claimed set off of loss from other sources against income of Rs. 6,66,228/- received from LIC. For want of details, AO denied this claim of set off. Matter travelled to first appellate authority. After considering submissions of assessee, CIT (A) confirmed same. Aggrieved, assessee is in appeal before Tribunal. 8. During proceedings before Tribunal, assessee filed written submission and stated that AO never call for such details at any time during assessment proceedings. Contents at page 49 / 50 of his submissions are relevant in this regard and same read as under:- observation of AO is factually incorrect. During course of assessment proceedings, AO had never raised requirement to furnish details of loss of Rs. 80,143/-. However, we would like to submit before your honour details of aforesaid loss claimed. appellant had contributed Rs. 10,00,000/- as venture capital fund in TVS Shriram Growth Fund (a trust formed under Indian Trust Act, 1882 and registered as Venture Capital Fund under SEBI Regulations. share of beneficial interest of appellant in TVS Shriram Growth Fund is 0.05%. fund had computed income under heads dividend and income from other sources . Further, fund had incurred direct expenses ad also proportion of common expenses. Thus, firm had net loss from other sources during Financial Year 2008-2009. proportionate loss of beneficiary (appellant) at 0.05% comes to Rs. 80,143/- and that loss of Rs. 80,143/- had been adjusted against other income (LIC income) of Rs. 6,66,228/- (the copy of TVS Shriram Growth Fund statement is submitted as additional evidence before your honour). 9. After considering above, I find it relevant to remand above issue to file of AO for fresh adjudication after granting reasonable opportunity of being heard to assessee. I order accordingly. Thus, 2nd issue as well as relevant grounds are allowed for statistical purposes. 10. 3rd issue relates to disallowance u/s 14A of Act. Brief facts in this regard are that assessee earned exempt income of Rs. 2,33,730/- and deleted indirect expenses of Rs. 21,182/-. Page 38 of paper book is relevant in this 4 regard. In assessment proceedings, AO computed disallowance at Rs. 1,20,551/- under Rule 8D(2)(iii) of IT Rules, 1962 @ 0.5 of average investments. Aggrieved, assessee carried matter in appeal before first appellate authority. After considering submissions of assessee, CIT (A) confirmed same. Therefore, assessee is in appeal before Tribunal. 11. During proceedings before Tribunal, Ld Counsel for assessee raised various arguments ie absence of AO s satisfaction; disallowance of Rs. 1,20,551/- exceeded to tax debit of Rs. 21,182/- (Rs. 20,845/- out of Rs. 21,182/- was paid for professional fees, unrelated expenditure to exempt income) etc. Before Tribunal, Ld Counsel for assessee relied on various decisions in support of above arguments. 12. After hearing all arguments of Ld Representatives of both parties, I find that decisions of AO / CIT (A) are not in sync with latest judicial pronouncements on issue under consideration. Therefore, I find it fit to set aside this issue to file of AO for fresh adjudication and decision in matter. I order accordingly. AO shall grant reasonable opportunity of being heard to assessee as per set principles of natural justice. Thus, 3rd issue as well as relevant grounds are allowed for statistical purposes. 13. In result, appeal of assessee is partly allowed for statistical purposes. Order pronounced in open court on 30th September, 2016. Sd/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER Mumbai; 30.09.2016 . . OKK , Sr. PS /Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. (The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 5 6. Guard file. //True Copy// / BY ORDER, (Dy./Asstt. Registrar) ,ITAT, Mumbai K.S. Kartikeyan v. Income-tax Officer – 22(2)(1), Mumbai