2014 (11) TMI 1158 - AT - Income Tax

Disallowance u/s 14A read with rule 8D - computation of claim - Held that - As consistent with the view taken by the Tribunal in the earlier year, we also order accordingly. Thus, AO is directed that, so far as the disallowance of interest is concerned in the working of rule 8D, no addition/disallowance should be made. As regards the disallowance on account of indirect expenses, by adopting 0.5% of the average investment, we confirm the disallowance as worked out in accordance with the rule 8D. Lastly, with regard to the disallowance on account of amount invested in share capital of partnership firm, we direct the AO to follow the earlier order of the Tribunal in A.Y. 2008-09 and work out the disallowance. Accordingly ground raised by the assessee is treated as partly allowed.

Summary

Issues involved:
Disallowance under section 14A read with rule 8D for quantum of assessment passed u/s 143(3) for A.Y. 2009-10.

Analysis:

1. Background and Disallowance Calculation:
The appeal was filed against an order dated 26.11.2012 by the Ld.CIT(A) regarding disallowance of &8377; 48,74,535 made under section 14A read with rule 8D for A.Y. 2009-10. The assessing officer noted that the assessee had earned exempt income through dividends and share profits but had not quantified any expenditure for disallowance under section 14A. Consequently, a disallowance was made under rule 8D(2) totaling &8377; 48,74,535.

2. Assessee's Contention and CIT(A)'s Decision:
The assessee argued that no disallowance of interest should be made due to substantial reserves and surplus compared to the investment capable of earning exempt income. Citing a decision by the Hon'ble Bombay High Court, the assessee contended against the disallowance. However, the Ld. CIT(A) rejected this argument based on a previous decision against the assessee for A.Y. 2008-09.

3. Tribunal's Decision and Analysis:
In the Tribunal's assessment, it was observed that the disallowance included interest and other expenses. Regarding interest disallowance, the Tribunal considered the assessee's claim that investments leading to exempt income were significantly lower than free reserves and share capital. Citing relevant case law, the Tribunal ordered the deletion of the interest disallowance. However, the Tribunal upheld the disallowance of other expenses at 0.5% of the average investment.

4. Rule 8D Application and Disallowance Calculation:
The Tribunal found no reason to interfere with the disallowance made under Rule 8D for A.Y. 2008-09. The Tribunal directed the AO to calculate the disallowance related to investments in share capital of partnership firms as per the earlier Tribunal order for A.Y. 2008-09. Considering the absence of fresh investments, the Tribunal ordered no addition/disallowance for interest under rule 8D, confirmed the disallowance of indirect expenses, and directed the AO to calculate the disallowance for investments in partnership firms.

5. Final Decision and Outcome:
The Tribunal partly allowed the appeal, ordering the deletion of interest disallowance while confirming the disallowance of indirect expenses and directing the calculation of disallowance related to investments in partnership firms. The decision was in line with the earlier year's judgment, considering the absence of fresh investments.

6. Conclusion:
The Tribunal's decision provided a detailed analysis of the disallowance under section 14A read with rule 8D for A.Y. 2009-10, addressing the specific arguments raised by the assessee and applying relevant legal precedents to reach a balanced outcome.