2014 (1) TMI 918 - AT - Income Tax

Deletion made u/s 14A of the Act r.w Rule 8D of the Rules Correctness of the claim Held that - 99% of the investment held by the assessee during the year, were made in the previous A.Ys. - In the A.Y. 2005-06, the assessee had invested 1.6 crores in mutual funds / shares. It had interest free funds of 4.1 crore in that year. Latter in the A.Y. 2006-07 the assessee invested 1.78 crore in mutual funds / shares and in that year it had interest free funds of 4.04 crore. The finding of the CIT (A) upheld that the borrowed funds had not been utilized for the purpose of making investment in shares/mutual funds - The factual finding of the CIT (A) that the assessee had interest free funds of Rs.25.13 crore at the end of the year, as against investment of 3.39 crore, is also not disputed by the DR - In fact the CIT (A) has considered the additional evidence filed by the assessee, by admitted the same and called for remand report from the AO and on consideration of this remand report has given these factual findings - The revenue has not disputed the admission of additional evidence Relying upon Maxopp Investment Ltd. Vs. CIT 2011 (11) TMI 267 - Delhi High Court . Disallowance of proportionate administrative expenses Held that - The assessee has demonstrated that there is no regular activity carried out by the assessee for making investment - When there is no activity of investment worth noting, no administrative expenditure can be apportioned Relying upon CIT Vs. Hero Cycles 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT relief granted to the assessee decided against Revenue. Deletion of deduction claimed u/s 35D of the Act Increase in share capital - Held that - Similar claim was allowed by the AO in the A.Ys. 2005-06 & 2006-07 and on the principle of consistency the claim cannot be disallowed this year - Allowability of claim of amortization have to be considered in the first year of the claim Relying upon Janak Dehydration Pvt. Ltd. Vs. ACIT 2010 (10) TMI 906 - ITAT AHMEDABAD with regard to principle of consistency - Once a claim for amortization is examined in the initial year and allowed, it cannot be disallowed in this latter years of amortization Decided against Revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Disallowance of deduction under section 35D of the Act.

Issue 1: Disallowance under section 14A of the Income Tax Act:

The appeal was against the order of the ld. CIT (A) for the A.Y. 2008-09. The AO disallowed an amount under section 14A of the IT Act 1961. The assessee appealed, and the first appellate authority granted relief. The revenue appealed on grounds related to the disallowance. The main issue was whether the disallowance under section 14A was justified. The AO's disallowance was based on the absence of separate bank accounts for investments, common pool of funds usage, and lack of attribution of administrative expenses towards earning exempt income. The first appellate authority, however, deleted the addition, citing the absence of proof of borrowed funds usage for investments, lack of regular investment activity, and absence of AO's satisfaction on the claim. The Tribunal upheld the first appellate authority's decision, emphasizing the factual findings and reliance on relevant case laws like Maxopp Investment Ltd. Vs. CIT 203 Taxman 364.

Issue 2: Disallowance of deduction under section 35D of the Act:

The second issue concerned the disallowance of a deduction claimed under section 35D. The ld. CIT (A) observed consistency in allowing similar claims in previous assessment years and denied the disallowance based on the principle of consistency. The Tribunal agreed with the ld. CIT (A), citing the need to examine the initial year for claim allowance, as per Janak Dehydration Pvt. Ltd. Vs. ACIT (2010) 134 TTJ (Ahd.). The Tribunal found no fault in the first appellate authority's decision and dismissed the revenue's appeal on this ground.

In conclusion, the Tribunal upheld the first appellate authority's decisions on both issues, dismissing the revenue's appeal. The judgment highlighted the importance of factual findings, satisfaction of assessing officers, absence of regular activity for investment disallowance, and the principle of consistency in allowing deductions.