2014 (11) TMI 1149 - AT - Income Tax

Disallowance of interest and other administrative expenditure u/s. 14A - Held that - There is no denial that assessee s own funds are much more than the investment made by the assessee. Drawing support from the decision of the Hon ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT in our considered opinion, this is not a fit case for considering interest expenses for the purpose of disallowance u/s. 14A r.w. Rule 8D of the Act. In so far as other expenses are concerned, we find force in the contention of the Ld. Counsel. In the computation of income, the assessee has suo moto disallowed stamp duty and registration charges of ₹ 2,25,000/- and loss on sale of investment at ₹ 3,23,44,976/- in addition to the disallowance out of interest at ₹ 27 lakhs. Considering all these facts in totality, we direct the AO to recompute the disallowance after taking into consideration the auditors remuneration at ₹ 1,70,760/-, legal and professional charges at ₹ 49,000/- and miscellaneous expenses & professional tax at ₹ 4,760/-. We further direct the AO to restrict the disallowance to the total actual expenditure incurred and claimed by the assessee. Appeal filed by the assessee is partly allowed.

Summary

Issues: Disallowance of interest and other administrative expenditure u/s. 14A

Analysis:
The judgment pertains to an appeal against the order of the Ld. CIT(A)-12, Mumbai for the assessment year 2009-10. The main issue raised by the assessee was the disallowance of interest and other administrative expenditure amounting to Rs. 29,65,022 under section 14A of the Income Tax Act. The assessee, engaged in promoting and managing capital, savings, and investments for a group of companies, had filed its return of income declaring total income at Rs. 1,18,40,273. The Assessing Officer observed that the assessee had claimed a significant amount as dividend exempt under section 10 and had suo-moto disallowed a portion under section 14A. Despite the assessee's claim of not incurring any expenditure for earning exempt income beyond the initial disallowance, the AO computed a higher disallowance under Rule 8D, resulting in the disputed amount.

The assessee challenged this disallowance before the Ld. CIT(A) but was unsuccessful. During the appeal before the ITAT Mumbai, the assessee contended that it had sufficient own funds to make investments, thus questioning the necessity of considering interest for disallowance under section 14A. Additionally, the assessee highlighted certain expenses already disallowed while computing taxable income, suggesting that these should be factored into the disallowance calculation. The Departmental Representative, however, supported the Revenue authorities' findings.

Upon reviewing the submissions and relevant evidence, the ITAT noted that the assessee's own funds exceeded the investments made, citing a precedent from the Bombay High Court to support its decision that interest expenses need not be considered for disallowance under section 14A. Regarding other expenses, the ITAT agreed with the assessee's position. Taking into account the auditors' remuneration, legal and professional charges, and miscellaneous expenses, the ITAT directed the AO to recompute the disallowance, restricting it to the actual expenditure claimed by the assessee. The ITAT relied on a Co-ordinate Bench decision to support this directive, ultimately partially allowing the assessee's appeal against the disallowance.

In conclusion, the ITAT's judgment addressed the disallowance of interest and administrative expenditure under section 14A, emphasizing the need to consider actual expenses incurred and claimed by the assessee while computing such disallowances.