2015 (10) TMI 2423 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - Held that - None of the contentions raised by the Ld. AR of the assessee is rendering any help to the assessee in the present case and none of the judgments cited by him is applicable in the facts of the present case and the disallowance made by the AO and confirmed by the Ld. CIT(A) is in accordance with Rule 8D and section 14A of the Act and therefore, we find no reason to interfere in the order of the Ld. CIT(A). - Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition of Rs. 304,622 under Section 14A read with Rule 8D of the Income Tax Rules.
2. Justification of non-applicability of Section 14A.
3. Whether satisfaction was recorded by the Assessing Officer (AO) under Section 14A(2).
4. Applicability of judicial precedents cited by the assessee.

Detailed Analysis:

1. Confirmation of Addition under Section 14A Read with Rule 8D:
The primary issue in this appeal is the confirmation of the addition of Rs. 304,622 under Section 14A read with Rule 8D. The assessee argued that the investments were made out of internal accruals and not from borrowed funds. The assessee's financial position indicated sufficient own funds to cover the investments, and the working capital loans were specifically for business purposes, not for investments. The assessee also claimed that no exempt income was earned during the year, thus disallowance under Section 14A should not apply.

2. Justification of Non-Applicability of Section 14A:
The assessee provided detailed submissions, including financial statements and judicial precedents, to justify the non-applicability of Section 14A. The assessee cited various judgments, such as C.I.T. vs. Metalman Auto Private Limited, C.I.T. vs. Reliance Industries Limited, and others, arguing that if no expenditure was incurred or there was no nexus between expenditure and investment, disallowance under Section 14A does not arise. Additionally, the assessee highlighted that no exempt income was earned during the year, referencing cases like M/S. Shivam Motors (P) Ltd. vs. CIT and CIT vs. HOLCIM INDIA P. LTD., which supported the contention that in the absence of tax-free income, corresponding expenditure could not be disallowed.

3. Whether Satisfaction was Recorded by the AO under Section 14A(2):
The AO noted that in AY 2009-10, the CIT(A) confirmed the addition under Section 14A and directed the computation of disallowance of interest under Rule 8D. The AO recorded satisfaction that the entire investment of Rs. 170 lakh was made on the strength of credit receipts in the assessee's bank account from packing credit/post-shipment credit. The Tribunal found that the AO had recorded satisfaction as required under Section 14A(2), and the basis of satisfaction was also provided.

4. Applicability of Judicial Precedents Cited by the Assessee:
The Tribunal examined the judicial precedents cited by the assessee. It found that the judgments relied upon by the assessee, such as those in the cases of Shivam Motors and others, were not applicable because they did not consider the Supreme Court judgment in the case of Rajendra Prasad Moody, which held that actual receipt of dividend is not necessary for disallowance under Section 14A. The Tribunal also noted that the judgment in the case of Rajasthan State Warehousing Corporation vs. CIT was before the insertion of Section 14A and thus not applicable post-insertion.

Conclusion:
The Tribunal concluded that the disallowance made by the AO and confirmed by the CIT(A) was in accordance with Rule 8D and Section 14A of the Act. None of the contentions raised by the assessee were found to be meritorious, and the judicial precedents cited were not applicable in the present case. Consequently, the appeal of the assessee was dismissed.

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