2016 (1) TMI 1095 - AT - Income Tax

Disallowance u/s 14A - Held that - Since the object of the assessee in making investment is to hold them as stock-in-trade. Accordingly, we are of the view that the methodology prescribed under Rule 8D(2)(iii) cannot be applied to the facts and circumstances of the instant case. Accordingly, we modify the order of the ld. CIT(A) and direct the AO to restrict the addition under Rule 8D(2)(iii) to ₹ 5,93,655/- - Decided partly in favour of assessee. Deduction claimed under section 35D disallowed - Held that - Identical issue has been decided against the assessee by the Co-ordinate Bench of the Tribunal passed in the assessee s own case relating to assessment year 2006-07 2015 (11) TMI 1277 - ITAT MUMBAI - Decided against the assessee Disallowance of claim of loss on account of re-valuation of securities - Held that - Loss on arising on re-valuation of securities is required to be allowed as decided in the assessee s own case relating to assessment year 2006-07 2015 (1) TMI 1012 - ITAT MUMBAI - Decided against revenue

Summary

Issues:
1. Disallowance under section 14A of the Act
2. Expenditure disallowance under Rule 8D(2)(iii)
3. Deduction claimed under section 35D of the Act
4. Disallowance of loss arising from re-valuation of securities

Issue 1: Disallowance under section 14A of the Act
The appellant, a banking business, contested the disallowance under section 14A, arguing no exempted income was received, securities were stock in trade, and non-interest bearing funds exceeded tax-free investments. The Departmental Representative advocated for disallowance under Rule 8D(2)(iii) citing case laws. The Tribunal agreed with the appellant that no disallowance under Rule 8D(2)(i) and (ii) was warranted if non-interest bearing funds exceeded tax-free investments, citing a Bombay High Court case. The Tribunal directed the Assessing Officer to re-examine the issue based on the fund position.

Issue 2: Expenditure disallowance under Rule 8D(2)(iii)
Regarding expenditure disallowance under Rule 8D(2)(iii), the appellant contended no disallowance was necessary as no exempt income was received. However, the appellant agreed to a restricted disallowance for expenses related to investments. The Tribunal found merit in the appellant's argument due to the investment purpose and directed the Assessing Officer to limit the disallowance under Rule 8D(2)(iii).

Issue 3: Deduction claimed under section 35D of the Act
The appellant sought a deduction of Rs. 3.28 crores under section 35D, but acknowledged a previous adverse Tribunal decision. Following precedent, the Tribunal upheld the Commissioner of Income Tax (Appeals) order on this issue.

Issue 4: Disallowance of loss arising from re-valuation of securities
The Revenue challenged the disallowance of a loss of Rs. 13.31 crores from re-valuation of securities. The Tribunal upheld the Commissioner of Income Tax (Appeals) decision based on previous Tribunal rulings and High Court decisions, emphasizing the allowance of such losses. Consequently, the Tribunal partly allowed the appellant's appeal and dismissed the Revenue's appeal.

In conclusion, the Tribunal's judgment addressed various issues related to disallowances, deductions, and losses, relying on legal precedents and directing the Assessing Officer to re-examine specific matters in accordance with the law.