2016 (6) TMI 1460 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D and 36 - assessee argued AO did not consider that the interest paid was in respect of specific loans taken as such as car loans and export packing credit loans, which were not considered for calculating proportionate interest - HELD THAT - As decided in assessee own case 2013 (9) TMI 1297 - ITAT MUMBAI we find merit in the prayer of the Ld Counsel to remit the matter to the files of the AO for examination of the issue afresh. Therefore, we remand the matter to the files of the AO to re-adjudicate the issue in accordance with the jurisdictional High Court judgment in the case of Godrej Boyce 2010 (8) TMI 77 - BOMBAY HIGH COUR after granting a reasonable opportunity of being heard to the assessee. It is the settled law that the AO is under obligation to reject the claim of the assessee by giving speaking order on this issue before he resort to thrust on the assessee the provisions of rule 8D r w section 14A of the Act. Accordingly, issue no.1 is remanded and relevant conclusions of the revenue authorities are set aside. Disallowance u/s 36(1)(iii) of the Act in respect of the interest claim of the assessee - It is a fact that neither the AO nor the CIT (A) have really gone into the issue of existence of excess funds and have given categorical findings about this fact. Therefore, in our considered opinion, this issue should also be set aside to the files of the AO for fresh adjudication considering the judgment of the Supreme Court in the case of Reliance Petro-products 2010 (3) TMI 80 - SUPREME COURT as well as the relevant law in force. In the light of the foregoing discussion, we direct the ld. Assessing Officer to examine the case of the assessee and decide afresh in the light of the directions contained in the aforesaid order of the Tribunal - Appeals of the assessee are allowed for statistical purposes.

Summary

Issues:
1. Disallowance u/s 14A and 36 of the Income Tax Act, 1961.
2. Applicability of Rule-8D r.w.s. 14A of the Act.
3. Disallowance u/s 36-1(iii) of the Act when the assessee has adequate excess interest-free funds.

Issue 1: Disallowance u/s 14A and 36 of the Income Tax Act, 1961:
The appeals were filed by the assessee for Assessment years 2009-10 & 2010-11, challenging the orders of the Ld. First Appellate Authority regarding disallowance u/s 14A and 36 of the Income Tax Act, 1961. The assessee, a manufacturer and exporter of diamonds, received dividend income and made disallowances. The Assessing Officer disallowed the interest u/s 14A of the Act r.w.r. 8D of the Rules. The contention was that specific loans were not considered for calculating proportionate interest. The Tribunal remanded the issues to the Assessing Officer for fresh examination based on previous decisions and the facts presented.

Issue 2: Applicability of Rule-8D r.w.s. 14A of the Act:
The first issue raised was the applicability of Rule-8D r.w.s. 14A of the Act without rejecting the reasoning for disallowance made by the assessee. The AO invoked Rule-8D without rejecting the claim of the assessee, which the Ld. Counsel argued was unsustainable in law. The Tribunal remanded the matter to the AO for reexamination in accordance with relevant judgments, emphasizing the need for the AO to reject the claim before applying Rule 8D.

Issue 3: Disallowance u/s 36-1(iii) of the Act when the assessee has adequate excess interest-free funds:
The second issue related to the disallowance u/s 36(1)(iii) of the Act concerning the interest claim of the assessee. The contention was that the assessee had sufficient interest-free funds, which were not examined by the lower authorities. The Tribunal agreed with the Ld. Counsel's arguments and remanded the issue back to the AO for fresh examination in light of relevant judgments, emphasizing the need to consider the existence of excess interest-free funds.

In conclusion, the Tribunal allowed the appeals of the assessee for statistical purposes, directing the Assessing Officer to reexamine the cases in accordance with the Tribunal's directions. The parties were given the opportunity to be heard and present evidence to support their claims. The appeals were allowed based on the detailed analysis and remand of the issues involved.