2016 (11) TMI 1696 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - sufficiency of own funds - suo moto disallowance - ITAT deleted the addition - satisfactory explanation - HELD THAT - Considering the fact that while making the addition made by the Assessing Officer under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962, the Assessing Officer did not record as to how the expenditure as claimed by the assessee was not satisfactory, and considering the fact that the assessee had sufficient interest free fund, out of which the concerned investment had been made, it cannot be said that the learned Tribunal has committed any error in deleting the addition made by the Assessing Officer made under Section 14A r.w.r. 8D of the Income Tax Rules, 1962. Under the circumstances and considering the direct decision of the Division Bench of this Court in the case of India Gelatine and Chemicals Limited . 2015 (11) TMI 392 - GUJARAT HIGH COURT No substantial question of law arise in the present appeal.

Summary

Issues:
1. Disallowance of expenditure directly attributable to capital work in progress.
2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.

Analysis:

1. Disallowed Expenditure on Capital Work in Progress:
The appellant challenged the ITAT's decision to delete the addition of &8377; 1,65,35,529 made by the Assessing Officer for disallowance of expenditure directly related to capital work in progress. The appellant sought permission to withdraw this part of the appeal, which was granted. Consequently, the appeal was dismissed concerning this issue.

2. Disallowance under Section 14A of the Income Tax Act:
The second issue revolved around the deletion of the addition of &8377; 1,22,12,831 made by the Assessing Officer under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The court considered the arguments presented by both parties and analyzed the impugned judgment. The ITAT had relied heavily on a previous decision of the Division Bench in the case of Principal Commissioner of Income Tax Vs. India Gelatine and Chemicals Limited. The court noted that the Assessing Officer had not provided reasons for deeming the claimed expenditure as unsatisfactory and that the assessee had enough interest-free funds for the investments made. Relying on the precedent and the facts of the case, the court concluded that the ITAT had not erred in deleting the addition. As a result, the court found no substantial question of law arising from this issue and dismissed the appeal concerning this matter.

In conclusion, the court dismissed the appeal regarding both issues. The first issue was withdrawn by the appellant, and the second issue was resolved in favor of the assessee based on the application of relevant legal principles and precedents.