2020 (10) TMI 1245 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Assessee submitted that interest expenditure incurred by the assessee should not have been disallowed under section 14A r.w. Rule 8D since no part of the borrowed funds were used by the assessee for making investments and prayed for deleting the disallowance of expenditure - HELD THAT - AO mentioned in the assessment order that the assessee made a submission that the assessee is having capital account balance of ₹ 6,25,90,602/-, but the Assessing Officer has not appreciated the said facts and nothing was discussed in his order. Thus, we set aside the orders of the authorities below and remit the matter back to the file of the Assessing Officer with the direction that he shall examine the balance sheet of the assessee and ascertain as to whether as on the date of investment, the assessee has sufficient own funds or not. If the assessee is having own funds as on the date of investment, then the assessee is entitled to claim exemption and there is no need of disallowance under section 14A of the Act r.w. Rule 8D(2)(ii). Disallowance under Rule 8D(2)(iii) - Assessing Officer is directed to consider only those investments for computing average value of investment which yielded exempt income during the year under consideration as per Rule 8D(2)(iii) in view of the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investment (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI and to pass detailed order on both counts. Accordingly, the ground raised by the assessee is allowed for statistical purposes.

Summary

Issues:
Confirmation of disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
The appeal was against the order of the ld. Commissioner of Income Tax (Appeals) relating to the assessment year 2013-14, specifically challenging the disallowance of &8377; 29,75,079 under section 14A of the Income Tax Act. The Assessing Officer had disallowed the amount under section 14A r.w. Rule 8D after assessing the total income of the assessee at &8377; 67,60,079. The ld. CIT(A) confirmed this disallowance. The assessee contended that the interest expenditure should not have been disallowed since no borrowed funds were used for investments. The Tribunal reviewed the financial statements and observed that the assessee had substantial investments and interest expenses but had not admitted any expenditure related to these investments. The Tribunal directed the Assessing Officer to examine whether the assessee had sufficient own funds at the time of investment to determine if the disallowance under section 14A was warranted.

The Tribunal found that the Assessing Officer had not adequately considered the assessee's capital account balance of &8377; 6,25,90,602 in relation to the investments made. The Tribunal set aside the orders of the lower authorities and remitted the matter back to the Assessing Officer to ascertain if the assessee had enough own funds at the time of investment. The Tribunal directed the Assessing Officer to consider only investments yielding exempt income for computing the average value of investments as per Rule 8D(2)(iii). The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a detailed examination of the assessee's own funds at the time of investment to determine the applicability of the disallowance under section 14A.

In conclusion, the appeal filed by the assessee was partly allowed for statistical purposes, with the Tribunal emphasizing the importance of assessing the availability of the assessee's own funds at the time of investment to decide on the disallowance under section 14A of the Income Tax Act, 1961.