2021 (2) TMI 1166 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - assessee had invested in equity shares in its sister concerns out of its non-interest bearing funds such as its equity share capital and reserves - CIT (A) deleted the addition by holding that since the assessee had made the entire investment out of its non-interest-bearing fund, no interest expenditure can be attributed for making the investment which is justifiable and appropriate.HELD THAT - In the case of the assessee the assessee company has utilised only its non-interest-bearing funds for making investment in its own subsidiary company, no interest cost can be attributable to the same because, there is no interest cost to the assessee, as it can be treated that the assessee has withdrawn from its capital and reserves which are assessee s interest free funds for making such investment. For making investment in its own company there cannot be any cost attributable with respect to direct and indirect expenses towards the process of decision making, due diligence, managerial expenditure and portfolio management expenditure because no such cost can arise for making investment in one s own entity. Only meagre expenses can be attributable with respect to clerical and stationary expenses which is negligible and that is deserved to be ignored. Factually there cannot be any expenditure attributable to the investment made in sister company when the investment is out of its own interest free fund. When the above facts were pointed out to the Ld. DR, he could not controvert to the same however, he relied on the order of the Ld. AO. Order of the ld. CIT (A) deleting the disallowance of expenditure made by the Ld. AO invoking the provisions of section 14A of the Act read with Rule 8D of the Rules does not call for interference. Hence, we hereby confirm the order of the Ld. CIT (A) on this issue. - Decided against revenue.

Summary

Issues:
- Appeal against the deletion of addition made under section 14A of the Income Tax Act.
- Interpretation of provisions of section 14A and Rule 8D regarding disallowance of expenditure.
- Application of judicial decisions to support the argument.
- Assessment of whether interest costs can be attributed when investments are made from non-interest-bearing funds.

Analysis:

The appeal in question was filed by the Revenue against the order of the Ld. CIT (A)-3, Hyderabad, concerning the deletion of an addition made under section 14A of the Income Tax Act. The crux of the matter revolved around the Ld. CIT (A)'s decision to delete the addition of &8377; 8,82,13,511/- made by the Ld. AO under section 14A of the Act read with Rule 8D of the Rules for the AY: 2013-14.

The Ld. CIT (A) based the deletion of the addition on the fact that the appellant did not claim any exemption for the income derived, thus rendering the provisions of section 14A inapplicable. The appellant also cited various judicial decisions to support their stance, emphasizing that the investments were made from non-interest-bearing funds, such as share capital and reserves, eliminating the need for any interest expenditure to be incurred for making such investments.

During the proceedings, the Ld. DR argued in favor of the Ld. AO's order, seeking reinstatement. However, the Ld. AR contended that since the investments were made from non-interest-bearing funds, no interest expenditure could be attributed. The Ld. AR highlighted that the provisions of section 14A and Rule 8D were erroneously invoked by the Ld. AO, leading to the disallowance of expenditure.

Upon careful consideration of the submissions and evidence, the Tribunal concluded that in the case of the assessee, no interest costs could be attributed to the investments made from non-interest-bearing funds. The Tribunal highlighted that only specific categories of expenses could be attributable to such investments, none of which applied in this scenario. Consequently, the Tribunal upheld the Ld. CIT (A)'s decision to delete the addition, as there was no basis for interference.

In light of the above analysis, the Tribunal dismissed the appeal of the Revenue, confirming the order of the Ld. CIT (A) regarding the deletion of the addition made under section 14A of the Income Tax Act.