2015 (10) TMI 1888 - AT - Income Tax

Disallowance made on the component of interest under section 14A - CIT(A) deleted the disallowance in part - Held that - No valid reason to interfere with his findings in partly deleting the disallowance made under section 14A of the Act and conclusion it is presumed that the appellant had made investments only out of the surplus funds available from the earlier years. Respectfully following the decision of the High Court of Bombay in the case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT), decision of the learned CIT(Appeals) in the appellant s own case for the A.Y. 2009-10, I am fully convinced that the AO has legally erred in making disallowance on the component of interest. AO has correctly applied the provisions of sec.14A read with Rule 8D and applied 0.5% of average investments which work out to ₹ 35,18,000/- which is reasonable and justifiable. This ground of appeal, as it relates to disallowance of 0.5% of average investments as expenditure is confirmed The Revenue also did not rebut the findings of the Commissioner of Income Tax (Appeals) with evidences. Thus, we sustain the order of the Commissioner of Income Tax (Appeals) and reject the grounds of appeal raised by the Revenue. As we have sustained the order of the Commissioner of Income Tax (Appeals), the cross objection filed by the assessee challenging the impugned order in sustaining the disallowance to the extent of 0.5% of average investments is also dismissed. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of interest amount under section 14A of the Act.
2. Disallowance of expenses attributable for earning dividend income.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Chennai involved the disallowance of interest amount of Rs. 2,66,89,000 under section 14A of the Act. The Assessing Officer disallowed a total of Rs. 3,02,07,000 under section 14A, attributing it to expenses for earning dividend income. The Commissioner of Income Tax (Appeals) deleted the interest component of Rs. 2,66,89,000, stating that none of the borrowed funds were used for investments and that the company had sufficient own funds for investments. The Tribunal upheld the Commissioner's decision, citing legal precedents and the appellant's financial statements to support the conclusion that no disallowance on the interest component was warranted.

2. The assessee filed a cross objection regarding the disallowance of expenses to the extent of 0.5% of average investments under section 14A read with Rule 8D(2)(iii) of the Act. The Departmental Representative supported the Assessing Officer's disallowance of Rs. 3.02 crores, while the counsel for the assessee argued that investments were not made from borrowed funds and that the disallowance was not justified. The Commissioner partly sustained the disallowance of Rs. 35,18,000, which represented 0.5% of average investments, and the Tribunal confirmed this decision. The Tribunal found no reason to interfere with the Commissioner's findings and rejected the Revenue's appeal, as no evidence was presented to rebut the Commissioner's decision. Consequently, the cross objection filed by the assessee was also dismissed, and both the appeal of the Revenue and the cross objection of the assessee were dismissed by the Tribunal.

In conclusion, the Appellate Tribunal ITAT Chennai upheld the Commissioner of Income Tax (Appeals)'s decision to delete the interest component of the disallowance made under section 14A of the Act. The Tribunal also confirmed the partial disallowance of expenses related to earning exempt income. The Tribunal found no valid reason to interfere with the Commissioner's findings and dismissed both the Revenue's appeal and the assessee's cross objection.