2019 (8) TMI 1694 - AT - Income Tax

Disallowance u/s.14A r.w.r. 8D under normal provisions of the Act as well as in computation of book profits u/s.115JB - HELD THAT - We find from perusal of the balance sheet as on 31/03/2010, total own funds available with the assessee is ₹ 295,23,58,270/-, whereas the investments made were only ₹ 131,21,08,283/-. Hence, the presumption that own funds is available with the assessee for making investments would apply even for the year under consideration we direct the ld. AO to delete the disallowance of interest made under second limb and rule 8D(2) of the rules. Disallowance of administrative expenses made under third limb of rule 8D(2) of the rules is concerned, we direct the ld. AO to make disallowance by considering only those investments that had yielded exempt income to the assessee. This direction is given in the light of decision in the case of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . Accordingly, the altered ground raised by the assessee with regard to disallowance u/s.14A of the Act r.w.r. 8D(2) of the rules under normal provisions of the Act is partly allowed. Disallowance made u/s. 14A of the Act, while computing book profits u/s.115JB of the Act, we find that the computation mechanism provided in rule 8D(2) of the rules cannot be imputed into Clause (f) to Explanation 1 to Section 115JB (2) of the Act as held by the Special Bench of Delhi Tribunal in the case of Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI . However, the ld. AO is directed to consider the disallowance of expenses incurred for the purpose of earning exempt income based on actual amounts debited to profit and loss account. This direction is also given in the light of the decision of Special Bench of Delhi Tribunal supra. Accordingly, the additional ground raised by the assessee is allowed for statistical purposes.

Summary

Issues: Disallowance under section 14A of the Income Tax Act, 1961 read with rule 8D of the rules in the sum of ?11,82,55,983 under normal provisions and computation of book profits.

The judgment pertains to an appeal in ITA No.1004/Mum/2015 for A.Y.2010-11 concerning the disallowance made under section 14A of the Income Tax Act, 1961 read with rule 8D of the rules. The primary issue was the disallowance of ?11,82,55,983 under normal provisions of the Act and in the computation of book profits under section 115JB of the Act. The assessee had received dividend income of ?5,75,03,434 and claimed it as exempt under section 10(34) of the Act without making any disallowance for expenses incurred to earn such exempt income. The ld. AO applied the computation mechanism under rule 8D(2) and arrived at the disallowance amount. The ld. CIT(A) upheld this disallowance. The assessee challenged this disallowance through altered and additional grounds of appeal.

The Tribunal found that the additional ground raised by the assessee was a legal issue not requiring factual verification and went to the root of the matter. Referring to a previous decision in the assessee's own case for A.Y.2008-09, it was established that the assessee had sufficient own funds available for investments, leading to the deletion of the disallowance of interest under rule 8D(2). The Tribunal directed the ld. AO to delete the disallowance of interest under the second limb of rule 8D(2) based on the availability of own funds for investments. Regarding administrative expenses disallowance under the third limb of rule 8D(2), the Tribunal directed the ld. AO to consider only those investments yielding exempt income, following a decision of the Special Bench of the Delhi Tribunal.

In the context of disallowance made under section 14A of the Act while computing book profits under section 115JB, the Tribunal held that the computation mechanism provided in rule 8D(2) could not be applied. However, the ld. AO was directed to consider the disallowance of expenses incurred for earning exempt income based on actual amounts debited to the profit and loss account. The Tribunal allowed the additional ground raised by the assessee for statistical purposes. Ultimately, the appeal of the assessee was partly allowed for statistical purposes based on the directions provided regarding the disallowances made under section 14A of the Act.

In conclusion, the Tribunal's judgment addressed the disallowance under section 14A of the Income Tax Act, 1961 read with rule 8D of the rules, both under normal provisions and in the computation of book profits. The decision provided detailed reasoning and directions based on legal precedents and the specific circumstances of the case, ultimately partially allowing the appeal for statistical purposes.