2017 (12) TMI 1602 - AT - Income Tax

Addition u/s 14A - Held that - As per the balance sheet on record, we found that assessee was having its own share capital and reserves of ₹ 10004.10/- lakhs as against the investment of ₹ 8094.70 lakhs. Since own capital and reserve was more than the investment, in terms of decision of the Bombay High Court in case of HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT , no disallowance on account of interest is warranted. We direct the AO to delete the disallowance on account of interest made u/s.14A. With regard to the other disallowance made under Rule 8D(2)(iii), we found that assessee himself has offered disallowance of ₹ 38,000/-. We also found that most of the investments of the assessee are in group concerns which are required to be excluded from average investment while computing disallowance under Rule 8D. We direct the AO to recompute the disallowance under Rule 8D(2)(iii) after excluding the investment made in group concerns. We direct accordingly. Premium paid on medical insurance policy of Managing Director - Held that - In the instant case the policy has been taken for the Managing Director of the Company who is a key personnel of the Company. However the terms of employment of Managing Director was not brought on record to substantiate the contention that premium so paid was for the benefit of company. Unless it is shown that premium so paid was for the benefit of company and not the personal benefit of Managing Director, the ratio laid down by Bombay High Court in the case of V.N. Export (2010 (3) TMI 186 - BOMBAY HIGH COURT) cannot be applied. We therefore, restore the matter back to AO for deciding afresh in terms of above observation.

Summary

Issues:
1. Disallowance under section 14A of Income Tax Act, 1961
2. Disallowance of premium paid on Insurance Policy

1. Disallowance under section 14A of Income Tax Act, 1961:
The appellant appealed against the order of CIT(A) confirming the disallowance made by the AO under section 14A. The assessee, engaged in Investment Banking, had initially disallowed a sum under Rule 8D but the AO disallowed a larger amount, justifying it as expenses incurred for earning exempt income. The AR argued that the investment made was from the assessee's own capital and reserves, exceeding the investment amount. Citing relevant court decisions, it was contended that no interest disallowance should be made. The DR argued that the investment source was not clearly demonstrated, supporting the AO's decision. The Tribunal found the own funds sufficient to cover investments, following precedents like Reliance Utilities Ltd. and HDFC Bank Ltd. The disallowance on interest under section 14A was directed to be deleted.

2. Disallowance of premium paid on Insurance Policy:
The premium paid on an insurance policy for the Managing Director was also disputed. The AR relied on a Bombay High Court decision to argue that the premium was for the benefit of the company, not personal benefit. However, the terms of the Director's employment were not provided to substantiate this claim. The Tribunal, therefore, remanded the matter to the AO for further examination based on the lack of evidence regarding the policy's benefit to the company. The appeal was allowed in part, with directions given for both issues to be reconsidered based on the Tribunal's findings.

This judgment by the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance under section 14A of the Income Tax Act and the premium paid on an insurance policy, providing detailed analysis and citing relevant legal precedents to support its decisions.