2018 (1) TMI 1626 - AT - Income Tax

Disallowance u/s 14A r.w,r. 8D - assessee could not establish one-on-one nexus between the own fund/ non-interest bearing fund with investments either during the assessment proceedings or at the appellate stage - CIT-A deleted the addition - HELD THAT - After evaluating the orders passed by ld. CIT(A), we are in agreement with this proposition that when both borrowed and own funds are available and the own funds and interest free loan exceeds investment, the presumption can very well be made that investments have been made from interest free funds and not from borrowed funds From the facts as well as documents placed on record, we noticed that the assessee had made huge investment as per profit and loss account and necessarily expenses must have been incurred towards undertaking these transaction / activities. Thus , in order to maintain consistency and judicial discipline , end of justice will be met in the instant case if further disallowance of expenditure u/s 14A is kept at an additional amount of ₹ 5,00,000/- towards administrative/misc. expenses to be added to the income of the assessee . This is in view of the non recording of proper satisfaction by the authorities below as to the incorrectness of the claim of the assessee s claim and also this disallowance u/s 14A so upheld by us is in consonance with the decision of Hon ble Supreme Court in the case of Godrej and Boyce Manufacturing Company Ltd. v. DCIT 2017 (5) TMI 403 - SUPREME COURT . We order accordingly.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D.
2. Appreciation of decisions of the High Court regarding disallowance under section 14A.
3. General ground raised by the revenue.

Analysis:

Issue 1: Disallowance under section 14A read with Rule 8D
The case involved an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of a specific amount under section 14A read with Rule 8D of the Income Tax Act for the assessment year 2009-10. The appellant, a private limited company engaged in construction activities and investments, had filed its return of income showing a loss. The Assessing Officer made a disallowance under section 14A read with Rule 8D, which was later deleted by the Commissioner of Income Tax (Appeals). The Tribunal evaluated the facts, including the investments made by the appellant and the interest paid on borrowed funds. Relying on the judgment of the jurisdictional High Court and the Tribunal's previous decisions, the Tribunal upheld the deletion of the disallowance by the Commissioner of Income Tax (Appeals). The Tribunal emphasized the importance of assessing whether investments were made from interest-free funds rather than borrowed funds, ultimately allowing the appeal partly by adding a nominal amount towards administrative expenses.

Issue 2: Appreciation of decisions of the High Court regarding disallowance under section 14A
The Tribunal extensively discussed the orders passed by the Commissioner of Income Tax (Appeals) and the judgments of the Hon'ble ITAT Mumbai and the jurisdictional High Court. The Tribunal highlighted the importance of evaluating whether investments were made from interest-free funds when considering disallowance under section 14A. By referencing the judgments and the appellant's financial details, the Tribunal agreed with the Commissioner of Income Tax (Appeals) and upheld the deletion of the disallowance. The Tribunal also emphasized the need for consistency in decisions and judicial discipline, citing relevant case law to support its decision.

Issue 3: General ground raised by the revenue
The third ground raised by the revenue was deemed general in nature and did not require specific adjudication. As a result, this ground was not extensively discussed in the judgment, and the appeal filed by the revenue was partly allowed based on the analysis and decision provided for the first issue regarding the disallowance under section 14A read with Rule 8D.

In conclusion, the Tribunal's detailed analysis and reliance on previous judgments and legal provisions resulted in the partial allowance of the revenue's appeal, emphasizing the importance of assessing the source of funds for investments when determining disallowances under section 14A of the Income Tax Act.