Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2015 (3) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (3) TMI 1408 - AT - Income TaxReopening of assessment u/s 147 - Addition u/s 14A r.w.rr. 8D - HELD THAT - Once the assessee did not press the issue of initiation of re-assessment proceedings before the Tribunal and allowed the decision to be taken on all issues on merits, we now cannot unsettle the earlier tribunal order by entertaining any ground about the initiation of re-assessment. AR fairly admitted that the order of the tribunal in the first round has been accepted by the assessee. In this view of the matter, we cannot permit the assessee to raise the ground against the initiation of reassessment once again, after having not pressed the same in the first round before the tribunal. This ground is, therefore, not allowed. Disallowance u/s 14A - AO was not correct in applying the provisions of Rule 8D for computing disallowance u/s 14A. Our view is fortified by the judgment of Maxopp Investments Ltd. 2011 (11) TMI 267 - DELHI HIGH COURT in which it has been held that the provisions of Rule 8D can apply only from the assessment year 2008-09 and in the earlier periods, the disallowance is required to be made on a reasonable and acceptable method of apportionment. For interest aspect it is vivid from the assessee s balance sheet that total investments at the end of the year stand at ₹ 167.74 crore. The assessee s capital along with reserve and surpluses stand at ₹ 448.33 crore. This shows that the assessee s Shareholders funds is far in excess of the investment made in securities yielding exempt income - in CIT vs. Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT has held that if there are interest free funds available with the assessee sufficient to meet its investment and, at the same time, loan has been raised, it can be presumed that the investments were from interest free funds and, resultantly, no disallowance of interest can be made. Recently, the Hon ble Bombay High Court in CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has held that no disallowance of interest can be made u/s 14A if the assessee s own capital is more than the investments fetching exempt income. Similar view has been taken by the Hon ble Gujarat High Court in the case of CIT vs. Suzlon Energy Ltd. . 2013 (7) TMI 697 - GUJARAT HIGH COURT . In view of the above judgments, it is patent that the disallowance u/s 14A on account of interest was not rightly made by the AO. Disallowance towards expenses incurred for earning exempt income - we find that the AO made addition by applying the mandate of Rule 8D(2) (iii). On the other hand, the ld. CIT(A) bifurcated total expenses into those exclusively relating to the manufacturing activity and those which are common to both manufacturing activity and exempt income. Such amount of common expenses was determined by the ld. CIT(A) at ₹ 80.23 crore. The ld. DR could not point out any deficiency in computing the base amount of expenses at ₹ 80.23 crore. Apportionment of expenses - CIT(A) was not justified in allocating ₹ 26.21 lac towards exempt income by apportioning such total expenditure of ₹ 80.23 crore in the ratio of dividend income to the total turnover of the company. There can be no comparison between dividend income on the one hand and total turnover on the other, which contains only a part as income. On the contrary, a valid base for apportionment is exempt income to taxable income. As in the case of HT Media Ltd. 2015 (8) TMI 708 - ITAT DELHI has also approved the apportionment of common expenses in the ratio of exempt income to total income. To this extent, the impugned order is set aside and the matter is sent back to the AO. We direct the AO to compute disallowance u/s 14A by apportioning total expenses of ₹ 80.23 crore in the ratio of exempt income to total income. However, it is made clear that the total disallowance should not exceed 10% of the exempt income, being the amount of disallowance sustained in the first appeal in the original round, against which the Revenue did not choose to prefer any appeal. - Appeal of the Revenue is partly allowed for statistical purposes a
Issues:
1. Disallowance u/s 14A of the Income-tax Act, 1961. 2. Jurisdiction of the AO to initiate proceedings u/s 147. 3. Applicability of Rule 8D for computing disallowance u/s 14A. 4. Correctness of disallowance made by the AO. Issue 1: Disallowance u/s 14A: The Revenue appealed against the reduction of addition u/s 14A from Rs. 1,43,06,087 to Rs. 26.21 lac, while the assessee contested the sustenance of the addition. The CIT(A) had earlier restricted the disallowance to 10% of exempt income. The AO, following Rule 8D, computed disallowance at Rs. 1.43 crore. The Tribunal held that Rule 8D was not applicable for the year under consideration and directed the AO to apportion expenses based on a reasonable method. The disallowance was adjusted to Rs. 26,21,424 by considering the ratio of dividend income to total turnover. Both parties appealed against the order. Issue 2: Jurisdiction of AO to Initiate Proceedings u/s 147: The assessee challenged the initiation of reassessment proceedings u/s 147, citing the proviso to section 14A. The Tribunal noted that the assessee had not pressed this ground in the first round of proceedings, and therefore, could not challenge it in the second round. The Tribunal upheld the previous order and disallowed the ground against the initiation of reassessment. Issue 3: Applicability of Rule 8D for Computing Disallowance: The Tribunal held that the AO erred in applying Rule 8D for computing disallowance u/s 14A. Citing the judgment in Maxopp Investments Ltd. Vs. CIT, it was established that Rule 8D applied only from the assessment year 2008-09. The disallowance was required to be made based on a reasonable and acceptable method of apportionment for earlier periods. Issue 4: Correctness of Disallowance Made by AO: Regarding the disallowance made by the AO, the Tribunal found discrepancies. Firstly, the disallowance of interest was not justified as the assessee's own capital exceeded the investments yielding exempt income. Citing judgments, the Tribunal concluded that no disallowance of interest could be made in such circumstances. Secondly, the apportionment of expenses towards exempt income was deemed incorrect. The matter was remitted to the AO to compute disallowance by apportioning expenses in the ratio of exempt income to total income, ensuring the total disallowance did not exceed 10% of exempt income. In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes and dismissed the assessee's appeal. The judgment clarified the correct method of computing disallowance u/s 14A and emphasized adherence to legal precedents in such matters.
|