2016 (5) TMI 1417 - AT - Income Tax

Disallowance u/s. 14A - sufficiency of own funds - Held that - The assessee has demonstrated that own funds available with it is more than the investment made hence there is no requirement of making any disallowance out of interest expenditure. The view taken by the assessee is supported by the decision of Hon ble High Court rendered in the case of CIT Vs. HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ). Further the assessee has made fresh investment in two mutual funds and most of the shares have been brought forward from the earlier year. Under these set of facts, we are of the view that the disallowance u/s. 14A may be restricted to 2% of the dividend income earned by the assessee Addition made to the value of closing stock by invoking provisions of section 145A - Held that - Assessee invited our attention to the paper book, wherein the assessee has prepared the profit and loss account both under exclusive method and inclusive method. Through this statement, the assessee has demonstrated that Net profit disclosed by the assessee remains the same under both methods. This statement shows that there would be no effect on the profit even if exclusive method is followed. We noticed that the Assessing Officer has not examined this statement put forth by the assessee.Accordingly, we are of the view that this issue requires fresh examination at the end of the Assessing Officer Disallowance of corporate membership fees - Held that - This issue is covered in favour of the assessee by the decision of Hon ble Delhi High Court in the case of Samtel Colour Ltd. (2009 (1) TMI 26 - DELHI HIGH COURT ) and also by the decision of P&H High Court in the case of M/s. Groz Beckert Asia Ltd. (2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT). Setting off of brought forward losses and unabsorbed depreciation - Held that - We direct the Assessing Officer to examine the contentions of the assessee and allow relief in accordance with law.

Summary

Issues Involved:
1. Disallowance u/s. 14A of the Act
2. Addition to the value of closing stock under section 145A of the Act
3. Disallowance of corporate membership fees
4. Setting off of brought forward losses and unabsorbed depreciation

Analysis:

1. Disallowance u/s. 14A of the Act:
The appeal addressed the disallowance under section 14A of the Act concerning dividend income. The Assessing Officer applied Rule 8D to disallow a substantial amount, which was partially relieved by the Learned CIT(A). The assessee argued that the High Court ruling specified Rule 8D's applicability from A.Y. 2008-09 onwards. They contended that no disallowance was necessary due to adequate own funds exceeding investments. The Tribunal agreed, limiting the disallowance to 2% of the dividend income, citing precedents supporting this approach.

2. Addition to the value of closing stock under section 145A of the Act:
The issue involved the Assessing Officer's adjustment to the closing stock value under section 145A, without corresponding adjustments to opening stock, purchases, and sales. The assessee demonstrated that the exclusive method used did not affect the net profit. The Tribunal found the Assessing Officer's approach distorted and directed a fresh examination, emphasizing the need to consider the profit and loss statement under both exclusive and inclusive methods.

3. Disallowance of corporate membership fees:
The Tribunal referred to High Court decisions favoring the assessee in similar cases, directing the Assessing Officer to delete the disallowed corporate membership fees.

4. Setting off of brought forward losses and unabsorbed depreciation:
The Tribunal instructed the Assessing Officer to review the assessee's contentions regarding setting off brought forward losses and unabsorbed depreciation, granting relief as per legal provisions.

In conclusion, the appeal was allowed for statistical purposes, with specific directions given for each issue. The judgment emphasized adherence to legal precedents and proper examination of financial statements to ensure accurate assessments.