2017 (11) TMI 1625 - AT - Income Tax

Disallowance u/s 14A - Held that - CIT(A) after due appreciation of material, reached a conclusion that own interest free funds far exceeded the investment. Secondly, the strategic investment and investments which yielded no exempt income were to be excluded for the purpose of computation of expenses disallowance. We find the approach to be a quite fair, reasonable & plausible and therefore, find no reason to interfere with the same. - Decided against revenue.

Summary

Issues:
1. Disallowance u/s 14A for Assessment Year 2013-14.

Detailed Analysis:
1. The appeal by the revenue challenged the order of the Ld. Commissioner of Income-Tax (Appeals) for the Assessment Year 2013-14, specifically focusing on the disallowance u/s 14A. The assessment for the impugned year was conducted by the Ld. Assistant Commissioner of Income Tax, Central Circle 9(3)(2) under section 143(3) of the Income Tax Act, 1961. Despite the absence of the assessee, the matter was heard based on the available material and the input from the Ld. Departmental Representative [DR].

2.1. The assessee, a resident corporate entity engaged in power generation, was assessed for the year in question at a total income of ?1,76,70,860/- compared to the returned income of ?1,47,05,590/-. The disallowance u/s 14A amounting to ?29,65,268/- was the primary subject of contention in the appeal.

2.2. During the assessment, it was observed that the assessee had earned exempt dividend income of ?2,99,750/- without making any suo-moto disallowance u/s 14A. The Assessing Officer, not being convinced by the assessee's contentions, computed the disallowance at ?29,65,268/- as per Rule 8D, comprising interest and expenses disallowance.

3. The assessee challenged the disallowance before the Ld. CIT(A) and achieved partial success. The interest disallowance was deleted due to specific purposes of borrowed funds and the excess of interest-free funds over investments. Regarding expense disallowance, it was noted that strategic investments and those not yielding exempt income should be excluded. The resultant disallowance was reduced to ?9,200/-. The revenue further appealed the decision.

4. After considering the material on record, the Tribunal found the CIT(A)'s approach fair and reasonable. The exclusion of strategic investments and investments not yielding exempt income for expense disallowance was deemed appropriate. Consequently, the Tribunal dismissed the revenue's appeal.

5. The Tribunal pronounced the order on 8th November 2017, dismissing the revenue's appeal regarding the disallowance u/s 14A for the Assessment Year 2013-14.