2014 (7) TMI 1113 - AT - Income Tax

Disallowance u/s.14A - Held that - The disallowance, it may be appreciated, is of the expenditure incurred, and which may not have any direct bearing on the income arising. Further, where and to the extent the A.O. is not in agreement with the assessee s claims for which though we do not see any reason in-as-much as the financial position, properly analyzed, should be able to identify the financing of each asset, either directly with reference to a source of funds, or from the common pool of funds, he shall state his reasons. - transgressed the scope of the appeals in-as-much as our purview, as the second appellate authority, is limited to answer the grounds raised before us. This is not so, as, firstly, the identification of interest allowable, or not so, u/s. 57(iii) is necessarily required to identify and quantify the interest subject to the disallowance u/s.14A. The said section is in fact a complete code in itself, widening the scope of apportionment, as explained in the case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT). Reference in this context may also be made to the decision in the case of Kapurchand Shrimal v. CIT 1981 (8) TMI 2 - SUPREME Court - Decided in favour of assessee.

Summary

Issues Involved:
Appeals against Orders by CIT(A) partly allowing the assessee's appeal on assessment u/s.143(3) for A.Y. 2008-09 & 2009-10. The main issue is the disallowance u/s.14A, confirmed and enhanced by CIT(A), leading to second appeal.

Analysis:

1. Disallowance u/s.14A:
The assessee raised objections regarding interest expenditure, investment in shares, and disallowance amount. The Tribunal noted that the balance-sheets and fund flow statements presented by the assessee were not considered by the authorities below. Consequently, the matter was remanded to the Assessing Officer for proper examination. The Tribunal outlined principles to determine admissible and inadmissible interest under various categories, emphasizing the need for the assessee to identify relevant details from its accounts. It clarified the application of proportionate formula in disallowing interest related to income-generating assets. References were made to legal precedents like Godrej and Boyce Mfg. Co. Ltd. case for detailed guidance on interest disallowance. The Tribunal also allowed the assessee to establish claims regarding indirect administrative expenditure, ensuring that disallowance under rule 8D(2)(iii) does not exceed actual expenditure claimed.

2. Legal Precedents and Scope of Appeals:
The Tribunal referred to cases like Rajendra Prasad Moody and Cheminvest Ltd. to support the decision-making process. It highlighted the importance of proper analysis in identifying asset financing and reasons for disagreement with the assessee's claims. The Tribunal justified its detailed analysis by stating that the identification of allowable interest under section 57(iii) is crucial for determining the disallowance under section 14A. The Tribunal's decision was based on a comprehensive interpretation of legal provisions and precedents like Godrej & Boyce Mfg. Co. Ltd. case and Kapurchand Shrimal v. CIT.

3. Conclusion:
Ultimately, the Tribunal allowed the assessee's appeals for statistical purposes, indicating a favorable outcome for the assessee in the appeal process. The detailed analysis and references to legal precedents demonstrate a thorough examination of the issues involved in the disallowance u/s.14A. The Tribunal's decision provides clarity on the principles governing interest disallowance and the importance of proper documentation and analysis in tax assessments.

This judgment by the Appellate Tribunal ITAT Mumbai provides a comprehensive analysis of the issues related to the disallowance u/s.14A in the context of the Income Tax Act, 1961.