2014 (9) TMI 1099 - AT - Income Tax

Addition made u/s 14A read with Rule 8-D - CIT-A deleted the addition - Held that - Admittedly, the A.O. has computed the disallowance u/s 14A read with Rule 8-D. It is a settled law that Rule 8-D is applicable from A.Y. 2008-09, hence, not applicable for the year as held in the case of Godrej and Boyce Mfg. Co. Ltd. Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT - Decided against revenue Attribution of in-direct and direct expenditure for earning the exempt income - Held that - We find that the total investment made during the year were at ₹ 9.39 crores. We also find that the assessee had profit on sale of investment at ₹ 21.55 crores, net profit during the year at ₹ 48.15 lacs and funds available on account of sale of investment during the year at ₹ 38.31 crores. In our considered opinion, the assessee was having sufficient own funds for making the investment of ₹ 9.39 crores. As own funds are found to be far in excess of the investment, we do not find any reason for making the disallowance at ₹ 50 lacs. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the additions sustained by the ld. CIT(A). - Decided against revenue Restricting the disallowance on account of administrative and managerial expenditure at 5% of the exempt income - Held that - We have carefully perused the order of the Tribunal in assesse s own case 2010 (10) TMI 214 - ITAT MUMBAI wherein ITAT has confirmed the disallowance on account of administrative and managerial expenses u/s 14A of the Act to the extent of 5% of the total exempt income. Respectfully following the findings of the Tribunal, the ld. CIT(A) has restricted the disallowance. We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A).- Decided against revenue Disallowance of interest expenditure - Held that - Total own funds available with the assessee was at ₹ 98.15 crores. The assessee has purchased fixed assets of ₹ 37.02 crores which is out of loan funds taken during the year thereby leaving the assessee net own funds of ₹ 98.14 crores. The investment made during the year is at ₹ 103.69 crores which means that ₹ 5.55 crores have been invested not out of own funds. Taking average rate of interest as taken by the ld. CIT(A) at para 9 of his order which is 4.35%. The total disallowance on account interest comes to ₹ 24 lacs approximately. Considering the above factual facts and figure, we direct the A.O. to restrict the disallowance to ₹ 24 lacs on this account.

Summary

Issues Involved:
1. Disallowance u/s 14A read with Rule 8-D of the Income Tax Rules, 1962 for assessment years 2006-07 & 2007-08.
2. Attribution of in-direct and direct expenditure for earning exempt income.
3. Restricting disallowance on account of administrative and managerial expenditure.
4. Adjustments u/s 115JB, clause (f) of the Act.
5. Computation of book profit u/s 115JB of the Act.
6. Disallowance of amortization of premium paid for leasehold land.
7. Value to be adopted for the opening written down value of the block of assets.
8. Addition of provision for doubtful debts for computing book profit u/s 115JB of the Act.

Analysis:

1. Disallowance u/s 14A read with Rule 8-D:
- The Tribunal dismissed the Revenue's appeal as Rule 8-D is not applicable for the relevant years per the decision of the Bombay High Court.

2. Attribution of Expenditure:
- The Tribunal found that the assessee had sufficient own funds for investments, leading to the deletion of disallowances made by the CIT(A).

3. Restricting Administrative and Managerial Expenditure:
- The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 5% of the exempt income based on previous tribunal rulings.

4. Adjustments u/s 115JB:
- The Tribunal confirmed the CIT(A)'s decision to restrict disallowances to 5% of the exempt income, following previous tribunal decisions.

5. Computation of Book Profit:
- The Tribunal directed the AO to recompute book profit after giving appeal effect, based on the decisions made in other grounds.

6. Disallowance of Amortization:
- The Tribunal dismissed the disallowance of amortization based on previous tribunal rulings.

7. Value of Block of Assets:
- The Tribunal upheld the CIT(A)'s order regarding the opening written down value of block assets based on previous tribunal decisions.

8. Provision for Doubtful Debts:
- The Tribunal dismissed the addition of provision for doubtful debts for computing book profit based on the retrospective effect of the Finance Act, 2009.

In conclusion, the appeals by the assessee for the relevant assessment years were partly allowed, while the Revenue's appeal was dismissed in one case and partly allowed in another. The Tribunal's decisions were based on legal precedents and factual considerations, ensuring a fair adjudication of the issues raised.