2017 (9) TMI 1751 - AT - Income Tax

Addition u/s. 14A r/w rule 8D - Held that - We find that there are 3 limbs of disallowance in Rule 8D(2). (i) The direct expenses taken by AO from AY 2010-11 (last AY order) is wrongly typed. (ii) The AO s expenditure of interest of ₹ 2,30,75,321/-. (iii) The assessee has made addition of ₹ 1,04,90,253/- u/s. 14A on earning of exempt income of ₹ 88,83,863/- which is more than the exempt income. Since the addition made by the assessee is reasonable and more than the exempt income earned, no further disallowance is necessary. Therefore, the addition of ₹ 4,15,24,709/- was rightly deleted by the CIT(A), which does not need any interference on our part, therefore, we affirm the impugned order on the issue in dispute involved in ground no. 1 and accordingly reject the same. - Decided against revenue.

Summary

Issues:
Appeal against deletion of addition under section 14A r/w rule 8D of the Income Tax Act.

Analysis:
The case involved an appeal by the Revenue against the deletion of an addition of ?4,15,24,709 made under section 14A r/w rule 8D of the Income Tax Act by the Ld. Commissioner of Income Tax (Appeals)-V, New Delhi. The assessee, engaged in power generation and distribution, had filed a return declaring NIL income which was later scrutinized. The Assessing Officer (AO) disallowed the claimed deduction under section 14A, citing the provisions of Rule 8D and the decision of the ITAT Special Bench in the case of M/s Cheminvest Ltd. The AO found that the assessee had not provided sufficient evidence to support the claim that no interest expenditure was incurred for investments yielding dividend income. Consequently, the disallowance under section 14A and Rule 8D was made, leading to the addition of ?4,15,24,709 to the assessed income.

The Ld. Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal and deleted the addition. In the appeal before the ITAT, the Revenue contended that the Ld. CIT(A) erred in deleting the addition and requested that the appeal be allowed. On the other hand, the assessee's counsel supported the Ld. CIT(A)'s order, arguing that it was well-reasoned and should not be interfered with. The ITAT examined the case and found three limbs of disallowance in Rule 8D(2), including direct expenses, interest expenditure, and the addition made by the assessee. The ITAT concluded that since the addition made by the assessee was reasonable and more than the exempt income earned, no further disallowance was necessary. Therefore, the ITAT affirmed the Ld. CIT(A)'s order and rejected the Revenue's appeal, resulting in the dismissal of the appeal.

In summary, the ITAT upheld the Ld. CIT(A)'s decision to delete the addition made under section 14A r/w rule 8D, based on the reasoning that the addition made by the assessee was sufficient and no further disallowance was warranted. The appeal of the Revenue was dismissed, and the impugned order was affirmed on the issue in dispute.