2016 (2) TMI 893 - AT - Income Tax

Disallowance u/s 14 r.w.r 8D - Held that - Since assessee has investments and shares which are yielding exempt incomes, we have no option than to confirm the amount under Rule 8D(2)(iii). - Decided against assessee

Summary

Issues:
1. Applicability of disallowance under Section 14A of the Income Tax Act.

Analysis:
The case involved an appeal by the assessee against an order passed by the Commissioner of Income Tax (Appeals) concerning the disallowance of interest under Section 14A of the Act for the assessment year 2009-10. The primary issue was whether the provisions of Section 14A applied to the assessee's case, considering the nexus between investments and borrowed funds. The Assessing Officer (AO) disallowed an amount under Rule 8D, leading to the addition of a substantial sum to the assessee's income. The assessee contested this disallowance, arguing that Section 14A was not applicable to their situation due to the nature of their business activities.

During the assessment proceedings, it was found that the assessee, a company engaged in manufacturing and selling veterinary vaccines and medicines, had investments and had debited a significant amount as interest expenses. The AO, upon not receiving a satisfactory explanation regarding the connection between borrowed funds and investments, applied Rule 8D to make the disallowance. The Commissioner of Income Tax (Appeals) partially allowed the assessee's appeal, deleting a portion of the disallowance but upholding the rest based on precedents and case laws.

The Tribunal analyzed the contentions raised by both parties and examined the facts on record. Despite the assessee's claims that investments were made for trading purposes and not to earn dividend income, the Tribunal observed that the assessee failed to provide concrete evidence supporting this assertion. The Tribunal noted that the AO had correctly invoked the provisions of Section 14A based on the lack of clarity regarding the expenditure incurred for earning exempt income. The Tribunal upheld the disallowance under Rule 8D(2)(iii) as the assessee's investments were generating exempt income, necessitating the confirmation of the amount added to the income.

In conclusion, the Tribunal dismissed the appeal, affirming the disallowance made under Rule 8D(2)(iii) of the Income Tax Act. The decision was based on the specific circumstances of the case, where the assessee's investments were yielding exempt incomes, justifying the application of Section 14A and Rule 8D. The Tribunal's ruling emphasized the importance of establishing a clear nexus between investments, income earned, and the provisions of the Act, ultimately leading to the rejection of the assessee's contentions and the dismissal of the appeal.