2018 (5) TMI 1942 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D2(ii) - availability of own funds - HELD THAT - We noticed that the appellant has own fund more than investment. The capital and reserves fund was to the tune of ₹ 26,433.77 lacs. The investment was to the tune of ₹ 9,453.07/- lacs. In view of law settled in Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT investment portion was not liable to be considered in computing the disallowance u/s 14A r.w. Rule 8D - The matter of controversy has rightly been adjudicated by the CIT(A) . Facts are not distinguishable at this stage also. No distinguishable material has been produced before us. In view of the said circumstances, we are of the view that the CIT(A) has rightly adjudicated the matter of controversy on this issue, therefore, we found no ground to be interfere with in this issue. Restriction of disallowance made u/s 14A r.w. Rule 8D of the Rules to the extent of dividend income from non-trade investment - HELD THAT - We noticed that the CIT(A) has restricted the AO to re compute the administrative expenses to the extent of ₹ 118.17 lacs which was the investment to earn the dividend income. In this regard, the matter of controversy has been adjudicated in the case of ACIT, Circle 17(1) New Delhi Vs. Vireet Investment P. Ltd. 2017 (6) TMI 1124 - ITAT DELHI in which it specifically held that only those investment are liable to be considered for computing average value of investment which yielded exempt income during the year. In view of the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and incorrectly which is not liable to be interfere with at this stage. Accordingly, this issue is being decided in favour of the assessee against the revenue.

Summary

Issues:
1. Whether interest portion should be considered in computing disallowance u/s 14A r.w. Rule 8D2(ii).
2. Whether disallowance u/s 14A of the Act r.w. Rule 8D should be restricted to dividend income from non-trade investment.

Analysis:

Issue No. 1:
The revenue contended that the CIT(A) erred in not considering the interest portion of ?6,32,96,027 in computing disallowance u/s 14A r.w. Rule 8D2(ii). The CIT(A) found that the appellant had sufficient own funds to cover the investments made, hence the interest portion was not considered for disallowance. The CIT(A) relied on judicial decisions and held that the interest amount cannot be considered for disallowance u/s 14A. The ITAT upheld the CIT(A)'s decision, stating that the appellant's own funds exceeded the investments, aligning with precedents, and thus, the interest portion was rightly excluded from disallowance.

Issue No. 2:
The revenue challenged the restriction of disallowance u/s 14A r.w. Rule 8D to the extent of dividend income from non-trade investment. The CIT(A) limited the disallowance to the dividend income from non-trade investments. The ITAT observed that the CIT(A) correctly directed re-computation of administrative expenses limited to the dividend income. Citing a specific case law, the ITAT affirmed that only investments yielding exempt income should be considered for disallowance. Consequently, the ITAT upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s rulings on both issues, emphasizing adherence to legal precedents and the specific nature of income derived from investments in determining disallowances under section 14A. The appeal filed by the revenue was dismissed, and the decision was pronounced on 23.05.2018.