2011 (10) TMI 662 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance u/s 14A of the Income Tax Act.
2. Confirmation of disallowance towards Administrative Expenses.

Summary:

Issue 1: Deletion of disallowance u/s 14A of the Income Tax Act

The Revenue appealed against the deletion of disallowance of Rs. 3,08,64,359 out of interest and Rs. 1,06,16,355 out of indirect expenses by the CIT (Appeals). The Assessing Officer (AO) had invoked the provisions of section 14A read with Rule 8D, disallowing expenses related to earning exempt income. The CIT (Appeals) noted that there was no increase in investments covered under section 14A, and the investments were made from surplus funds and internal accruals, not from borrowed funds. The CIT (Appeals) also referenced the Tribunal's decision in the assessee's own case for the assessment year 2004-05, which was affirmed by the Hon'ble Punjab & Haryana High Court, confirming that no disallowance u/s 14A was warranted as the investments were made from the assessee's own funds. The Tribunal upheld the CIT (Appeals)'s findings, noting that the Revenue did not controvert these findings.

Issue 2: Confirmation of disallowance towards Administrative Expenses

The assessee's Cross Objection challenged the confirmation of disallowance of Rs. 2,00,000 towards Administrative Expenses. The Tribunal referred to the Hon'ble Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT, which held that Rule 8D applies prospectively from assessment year 2008-09 and that the AO could apportion expenses related to exempt income even without Rule 8D. The Tribunal also cited the Hon'ble Punjab & Haryana High Court's decision in CIT v. Hero Cycles Ltd., which supported the non-sustainability of disallowance u/s 14A when investments were made from dividend proceeds. However, the Tribunal upheld the disallowance of Rs. 2,00,000 as it was deemed relatable to earning exempt income.

Conclusion:

The appeal of the Revenue and the Cross Objection of the assessee were both dismissed. The Tribunal upheld the CIT (Appeals)'s deletion of disallowance u/s 14A and confirmed the disallowance of Rs. 2,00,000 towards Administrative Expenses.