2015 (5) TMI 1170 - AT - Income Tax

Addition u/s 14A - Held that - In our considered opinion, the investments made by the assessee are in Growth Oriented Funds where no dividend is declared. However, we find that whenever there is maturity of these funds, the amount is subject to tax under the head Capital Gain . Considering all we decline to interfere with the findings of the Ld. CIT(A). - Decided against revenue

Summary

Issues:
- Appeal against the order of Ld. CIT(A) regarding the addition under section 14A of the Income Tax Act.

Detailed Analysis:
1. Facts of the Case:
- The appellant, engaged in insurance broking, filed its return for the assessment year 2009-10, declaring nil dividend income on investments of shares and mutual funds totaling Rs. 13,90,15,862.
- The Assessing Officer (AO) noted the lack of dividend income and sought an explanation for not making a disallowance under section 14A of the Act.

2. AO's Disallowance and CIT(A)'s Decision:
- The AO computed a disallowance of Rs. 13,79,844 under section 14A.
- The assessee contended before the Ld. CIT(A) that no exempt income was earned from investments bearing exempt income, hence section 14A was not applicable.
- The Ld. CIT(A) agreed with the assessee, stating that investments were in growth-oriented funds with no dividend, and any gains upon maturity would be taxable as capital gains, not exempt income.

3. Appellate Tribunal's Decision:
- The Revenue appealed the Ld. CIT(A)'s decision.
- The Tribunal considered the nature of investments in growth-oriented funds and the tax implications upon maturity.
- Referring to a decision of the Tribunal Mumbai Bench, the Tribunal upheld the Ld. CIT(A)'s findings, concluding that no disallowance was warranted under section 14A for the assessment year 2009-10.

4. Final Verdict:
- The appeal filed by the Revenue was dismissed, affirming the Ld. CIT(A)'s order.
- The Tribunal pronounced the order on 19th May 2015, supporting the decision based on the nature of investments and tax implications upon maturity.