2015 (5) TMI 1034 - AT - Income Tax

Addition u/s. 14A r.w. Rule 8D in respect of dividend income received by the assessee - Held that - In the present case, since the shares were not held as investment and dividend was received by the assessee on the shares held as stock-in-trade in the course of business, there is no question of making disallowance u/s. 14A of the Act. In assessment year 2007-08 the assessee has also raised issue with respect to disallowance of interest. The assessee has paid total interest of ₹ 15,85,460/- on borrowed funds. The Assessing Officer disallowed interest expenditure to the extent of ₹ 6,17,197/- being loans/advances given from interest bearing funds to certain persons for non-business purposes. Before, the Commissioner of Income Tax (Appeals), the assessee gave detailed calculation with respect to total interest paid, utilization of interest bearing funds and the rate of interest. The Commissioner of Income Tax (Appeals) partly accepted the contentions of the assessee and reduced the disallowance of interest to ₹ 1,23,389/-. The Commissioner of Income Tax (Appeals) also accepted the rate of interest admitted by the assessee @ 7.58%. The grievance of the assessee is that the Commissioner of Income Tax (Appeals) has not properly appreciated the detailed interest calculations. We observe that the detailed computation of interest which was filed by the assessee before the Commissioner of Income Tax (Appeals) was not available before the Assessing Officer. In our considered opinion this issue needs a revisit to the Assessing Officer. Accordingly, the file is remitted back to Assessing Officer with a direction to decide this issue afresh after taking into consideration the interest computation filed by the assessee and information available in the books of account. This ground of appeal of the assessee is allowed for the statistical purpose

Summary

Issues Involved:
1. Disallowance under section 14A r.w. Rule 8D for dividend income.
2. Disallowance of interest expenditure on borrowed funds for non-business purposes.

Issue 1: Disallowance under section 14A r.w. Rule 8D for dividend income:
- The appellant challenged the addition made under section 14A r.w. Rule 8D for dividend income received during the assessment years 2006-07 and 2007-08. The appellant contended that as a trader of shares without an investment portfolio, no disallowance under section 14A should be applicable. The Revenue failed to prove that the shares were held as investments. The Tribunal noted that the dividend income was incidental to the trading business and not from an investment portfolio. Citing the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. Vs. CIT, it was held that Rule 8D was not applicable for the relevant assessment years. The Tribunal allowed the appeal as there was no basis for disallowance under section 14A.

Issue 2: Disallowance of interest expenditure on borrowed funds for non-business purposes:
- The appellant contested the disallowance of interest expenditure on borrowed funds for non-business purposes in the assessment year 2007-08. The Assessing Officer disallowed a portion of the interest paid, alleging diversion of funds for non-business use. The Commissioner of Income Tax (Appeals) partially upheld the disallowance. The Tribunal observed that the detailed interest computation submitted by the appellant was not considered by the Assessing Officer. Therefore, the matter was remitted back to the Assessing Officer for a fresh decision after reviewing the interest computation and relevant information. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal allowed the appeal for the assessment year 2006-07 and partly allowed the appeal for the assessment year 2007-08, directing a reassessment of the interest expenditure issue. The judgment emphasized the absence of an investment portfolio for disallowance under section 14A and the need for a thorough review of interest computations for disallowance of interest expenditure.