2014 (12) TMI 1312 - AT - Income Tax

Disallowance u/s.14A - investment in the subsidiary of the assessee - Held that - There is no dispute that there is fresh investment during the year by the assessee and the investment was made in the earlier years that too in the subsidiary of the assessee. The assessing officer did not disallow the interest expenditure u/s.14A, in the Assessment years 2006-07 & 2007-08. It is pertinent to note that the use of borrowed fund has to be examined in the year of investment and if the AO has not disallowed any interest expenditure in the year investment then no disallowance can be made in the subsequent year when no fresh investment was made by the assessee. Therefore, AO can not take a different view in violation of rule of consistency when there is no change in the facts and circumstances of the case rather in the year under consideration there was no fresh investment. Apart from no fresh investment for the assessment year 2008-09 it is also undisputed fact that investment in question is in the subsidiary of the assessee and further there was neither dividend income nor any claim of exempt income of the assessee. Thus issue was considered by the Hon ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd.(2014 (3) TMI 856 - GUJARAT HIGH COURT) and after following the judgment of Hon ble P & H High Court in the case of CIT v. Winsome Textile Inds. Ltd.(2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT) it was held that when the assessee did not claim of any exempt income, section 14A has no application. The Coordinate Bench of this Tribunal in case of Garware Wall Ropes Ltd. v. ACIT (2015 (2) TMI 628 - ITAT MUMBAI) has taken a view that no disallowance can be made u/s.14A in the case of investment in the subsidiaries for the purpose of holding the controlling stack and not for earning dividend income. - Decided in favour of assessee. Disallowance as u/s.40(a)(ia) for Short deduction of TDS - Held that - the assessee deducted the tax under the belief that the rate of tax provided under the specific provision of chapter XVII applicable in the case of the assessee which was not accepted by the AO, therefore, the provisions of section 40(a)(ia) cannot be applied of Short deduction of TDS due to the bona fide belief of the assessee. In the case in hand the facts are not brought on record by the assessee as what is the reason for short deduction. Therefore, in the absence of complete and proper facts it is not possible to decide the issue conclusively. Accordingly, we set aside this issue to record of the CIT appeal for verification of the relevant facts and particularly the reason for short deduction of TDS by the assessee Addition u/s 14A - Held that - Though the disallowance of interest under rule 8D(ii) is not applicable, when the assessee is having its own fund which are more than the investment in question however when there is a direct connection of the borrowed fund used for investment then the decision in the case of Reliance Utilities & Power Ltd. will not help in the case of the assessee. Accordingly, the disallowance of interest of ₹ 2,15,753/- as a direct interest expenditure under Rule 8D(i) has to be made. In view of the above discussion we modify the order of the authorities below and restrict the disallowance to the extent of ₹ 2,15,753/- on account of interest expenditure u/s.14A. Accordingly, this ground is partly allowed.

Summary

Issues Involved:
1. Disallowance under Section 14A as per Rule 8D.
2. Disallowance due to short deduction of TDS under Section 40(a)(ia).

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A as per Rule 8D:

For Assessment Year 2008-09:
- The Revenue challenged the deletion of disallowance amounting to Rs. 5,40,324/- by CIT(A).
- The assessee had no new investments during the year, and the investments were made in earlier years in its subsidiary.
- The AO had made disallowance under Rule 8D, but CIT(A) deleted it, considering no new investments and no disallowance made in earlier years.
- The Tribunal upheld CIT(A)'s decision, noting no fresh investments and no claim of exempt income by the assessee. The Tribunal referred to judgments of various High Courts, including the Gujarat High Court in Corrtech Energy (P) Ltd. and P&H High Court in Winsome Textile Inds. Ltd., which held that Section 14A has no application if no exempt income is claimed.

For Assessment Year 2009-10:
- The grounds were identical to those of AY 2008-09.
- The Tribunal dismissed the Revenue's appeal, following its findings for AY 2008-09.

For Assessment Year 2010-11:
- The Revenue challenged the deletion of disallowance amounting to Rs. 23,88,124/- by CIT(A).
- The Tribunal noted fresh investments during the year amounting to Rs. 6 crores, partly funded by borrowed funds (Rs. 15 lacs).
- The Tribunal upheld the disallowance to the extent of Rs. 2,15,753/- as direct interest expenditure under Rule 8D(i), modifying the order of the authorities below.

2. Disallowance due to short deduction of TDS under Section 40(a)(ia):

For Assessment Year 2008-09:
- The Revenue challenged the deletion of disallowance amounting to Rs. 4,88,500/- by CIT(A).
- The AO noted shortfall in TDS deduction on certain expenses and disallowed the proportionate expenditure.
- CIT(A) deleted the disallowance, relying on various Tribunal decisions that provisions of Section 40(a)(ia) do not apply where TDS is deducted at a lower rate.
- The Tribunal set aside the issue to CIT(A) for verification of relevant facts and reasons for short deduction of TDS.

For Assessment Year 2009-10:
- The grounds were identical to those of AY 2008-09.
- The Tribunal set aside the issue to CIT(A) with identical directions for verification.

Conclusion:
- For AY 2008-09 and 2009-10, the Tribunal upheld the deletion of disallowance under Section 14A and set aside the issue of short deduction of TDS to CIT(A) for verification.
- For AY 2010-11, the Tribunal partly allowed the disallowance under Section 14A to the extent of direct interest expenditure and did not address the issue of short deduction of TDS as it was not raised for this year.