2017 (4) TMI 1459 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - HELD THAT - As decided in own case 2017 (2) TMI 1428 - ITAT MUMBAI as contended by the assessee, it is settled position of law that the provisions of Rule 8D of the I.T. Rules, 1962 are applicable prospectively for and from A.Y. 2008- 09 and would not operate for the assessment years prior thereto. In this view of the matter, CIT(A)'s directions to the AO to work out/compute the disallowance under section 14A of the Act by applying Rule 8D of the Rules is erroneous and we therefore delete the same and in the fitness of things, we direct the AO to re-compute the disallowance under section 14A of the Act afresh, in accordance with the law prevalent for the year under consideration, after affording the assessee adequate opportunity of being heard and to file details/submissions required in this regard. Assessee's appeal are treated as allowed for statistical purposes. Disallowance of interest on loans to subsidiaries - HELD THAT - Assessee stated that loans and advances which are under consideration have already been considered by the Tribunal in earlier years and decided the issue in favour of assessee allowing the claim of the assessee. The assessee stated that the issue now stands covered in favour of assessee. On the other hand, the learned Sr. DR fairly conceded that there is reduction in loans and advances what was in earlier years. We find that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Tribunal in assessee s own case. Hence, respectfully following the same we allow the claim of the assessee. The orders of the lower authorities are set aside and this issue of assessee s appeal is allowed.

Summary

Issues:
1. Disallowance of expenditure in relation to exempt income for AY 2006-07.
2. Disallowance of interest on loans to subsidiaries for AY 2006-07.
3. Disallowance of expenses relatable to exempt income under section 14A of the Act for AY 2006-07.

Issue 1: Disallowance of Expenditure in Relation to Exempt Income for AY 2006-07:
The appeals involved a dispute regarding the disallowance of expenditure in relation to exempt income for AY 2006-07. The CIT(A) set aside the AO's order directing him to calculate total expenditure in accordance with the decision of the Bombay High Court in the case of Godrej and Boyce Manufacturing Company Ltd. vs. DCIT. The Revenue appealed against the CIT(A)'s finding that Rule 8D is applicable only from AY 2008-09, not for AY 2006-07. The Assessee appealed against the CIT(A) not considering their submissions. The Tribunal, following its decision for AY 2005-06, remanded the issue back to the AO for fresh adjudication, providing reasonable opportunity to the Assessee. The Tribunal held that Rule 8D is not applicable for AY 2006-07, and disallowed the Revenue's appeal while partly allowing the Assessee's appeal.

Issue 2: Disallowance of Interest on Loans to Subsidiaries for AY 2006-07:
Another issue in the appeal was the disallowance of interest on loans to subsidiaries at a specific amount. The Tribunal considered the issue in light of its decision for AY 2005-06 and earlier years, where it had allowed the claim of the Assessee regarding interest-free advances to subsidiaries. The Tribunal found that the loans and advances had been considered in previous years and decided in favor of the Assessee. The Tribunal allowed the claim of the Assessee, setting aside the orders of the lower authorities and ruling in favor of the Assessee.

Issue 3: Disallowance of Expenses Relatable to Exempt Income under Section 14A of the Act for AY 2006-07:
The appeals by the Revenue and the Assessee for AY 2006-07 were against the orders of the Tribunal regarding the disallowance of expenses related to exempt income under section 14A of the Act. Since the main appeal of the Assessee related to the same issue was remanded back to the AO for fresh adjudication, these two appeals became infructuous. Therefore, the Tribunal dismissed these two appeals as they were no longer relevant due to the remand of the main appeal.

In conclusion, the Appellate Tribunal ITAT Mumbai delivered a detailed judgment on various issues related to the disallowance of expenditure in relation to exempt income, interest on loans to subsidiaries, and expenses relatable to exempt income under section 14A of the Act for AY 2006-07. The Tribunal remanded the first two issues back to the AO for fresh adjudication, following its previous decisions and providing reasonable opportunities to the Assessee. The third issue became infructuous due to the remand of the main appeal and was consequently dismissed.