2014 (2) TMI 70 - AT - Income Tax

Disallowance made u/s 14A of the Act r.w. Rule 8D of the Rules Whether payment of interest to broking companies and NBFC excludable or not Held that - THe CIT(A) has rendered a well-considered and well discussed decision after considering each and every aspect of the matter involved in the disallowance to be made u/s 14A of the Act by applying Rule 8-D - He has identified the common expenses which were partly attributable to the earning of exempt dividend income and accordingly has quantified the disallowance to be made out of the said expenses on proportionate basis - He has also directed the A.O. to verify the stand of the assessee of having incurred the interest expenses in relation to the activity of trading in shares and to apply the formula given in Rule 8-D for the purpose of making disallowance out of interest on such verification - He has also rightly rejected the contention of the assessee that the average value of investment in its books is nil after having found the same to be in-correct Relying upon Income-tax Officer Ward 6(2) (2) Mumbai Versus Daga Capital Management (P.) Ltd. 2008 (10) TMI 383 - ITAT MUMBAI - the decision rendered by the CIT(A) on the issue is well founded and the revenue has not been able to raise any material contention to dispute this position order of the CIT(A)0 upheld Decided against Revenue.

Summary

Issues:
1. Disallowance u/s 14A read with Rule 8-D of the Income Tax Rules, 1962.

Detailed Analysis:

Issue 1: Disallowance u/s 14A read with Rule 8-D of the Income Tax Rules, 1962.
The Revenue appealed against the order of the ld. CIT(A) regarding the disallowance u/s 14A read with Rule 8-D. The Revenue contended that the ld. CIT(A) erred in excluding interest payments to Broking Companies and NBFC for the purpose of disallowance under Rule 8D(2)(ii). The assessee, a company engaged in investing and trading in shares, claimed exemption for dividend income and made a suo motu disallowance. The A.O. applied Rule 8-D and calculated the disallowance at Rs. 50,16,015. The ld. CIT(A) directed the A.O. to recompute the disallowance considering common expenses attributable to exempt income and the interest expenses directly related to business income. The ld. CIT(A) restricted the disallowance made by the A.O. The Tribunal upheld the ld. CIT(A)'s decision, noting a well-considered approach in identifying common expenses and verifying interest expenses' nexus with trading activity. The Tribunal dismissed the Revenue's appeal, affirming the ld. CIT(A)'s order.

The assessee raised a Cross Objection challenging the disallowance of Rs. 2,44,554 u/s 14A r.w. Rule 8D(iii) related to the average of opening and closing shares held as stock-in-trade. During the hearing, the assessee did not press the grounds raised in the C.O., leading to its dismissal. Consequently, both the Revenue's appeal and the C.O. filed by the assessee were dismissed, with the order pronounced on 21st August 2013.