2014 (9) TMI 1125 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - sufficiency of own funds - Held that - The undisputed fact is that the assessee is having own funds in the form of share capital and reserves and reserves and surplus amounting to ₹ 101.31 crores as against the investments of ₹ 69.08 crores. This clearly shows that the assessee is having sufficient own funds to make the investment. Further, we find that out of the total investments of ₹ 69.08 crores, ₹ 66.68 crores are invested in subsidiary/associate companies. Further, we find that the loan liability of ₹ 25.25 crores as on 31.3.2008 has come down to ₹ 15.61 crores as on 31.3.2009 i.e. year under consideration. This also proves that there are no fresh borrowings during the year under consideration. No reason for the allocation of interest expenditure towards earning of exempt income. However, allocation of administrative and other expenses cannot be ruled out. The disallowance as per Rule 8D (2)(iii) as computed by the Ld. CIT(A) comes to ₹ 2,10,756/-. In our considered opinion, this disallowance would meet the ends of justice. The total disallowance sustained is ₹ 2,10.756/-. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961.
2. Condonation of delay in filing cross objections.

Analysis:

Issue 1: Disallowance of expenses under section 14A of the Income Tax Act, 1961:
- The Revenue appealed against the deletion of an addition of Rs. 1,52,97,867 made under section 14A of the Income Tax Act by applying Rule 8D, which was confirmed by the Ld. CIT(A).
- The assessee's cross objections contested the disallowance of Rs. 9,52,147 under section 14A and the failure to delete the entire disallowance of Rs. 1,53,19,575 computed by the AO.
- The Ld. CIT(A) excluded investments in subsidiary/associate companies and confirmed a disallowance of Rs. 9,52,147.
- The Tribunal found that the assessee had sufficient own funds to make investments, with a higher amount invested in subsidiary/associate companies and a decrease in loan liability.
- Considering the facts, the Tribunal held that there was no need for allocating interest expenditure towards earning exempt income but allowed a disallowance of administrative and other expenses amounting to Rs. 2,10,756.
- The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objection.

Issue 2: Condonation of delay in filing cross objections:
- The cross objections by the assessee were filed late by 26 days, but the delay was condoned after the assessee provided reasonable and sufficient cause for the delay.
- The Tribunal carefully reviewed the application for condonation of delay and the affidavit before granting the condonation.

This judgment addresses the disallowance of expenses under section 14A of the Income Tax Act, 1961, and the condonation of delay in filing cross objections, providing a detailed analysis of the arguments presented by the parties and the Tribunal's decision based on the facts and legal provisions.