2017 (2) TMI 1536 - AT - Income Tax

Disallowance u/s 14A - AO computed the disallowance in both the years u/r. 8D(2)(iii) of the I.T. Rules at 0.5% of average value of investment - CIT(A) took the view that investments made by the assessee are in the form of strategic investments and accordingly directed AO to compute the disallowance at 5% of the fixed/semi variable expenditure incurred by the assessee - HELD THAT - As counsel submitted that AO had made identical disallowance in A.Y. 2009-10 also, which was reduced to 5% of the fixed/semi variable expenses by the order passed by the learned CIT(A). Revenue took the matter to the Tribunal and the Tribunal 2014 (11) TMI 1274 - ITAT MUMBAI has confirmed the order passed by the learned CIT(A) and accordingly dismissed the appeal filed by the Revenue. AR submitted that the learned CIT(A) has followed its own order passed in A.Y. 2009-10 in the years under consideration also. DR did not controvert the factual aspects presented by learned AR In view of consistent with the view taken by the coordinate Bench of the Tribunal in A.Y. 2009-10, we confirm the order passed by the learned CIT(A) in the years under consideration also.

Summary

Issues involved:
1. Disallowance under section 14A of the Act based on investments in subsidiary companies, associates concerns, and partnership firms.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the Revenue's appeal for A.Y. 2010-11 and cross-appeals by the parties for A.Y. 2011-12 against the orders of the CIT(A)-36, Mumbai. The assessee expressed disinterest in pursuing the appeal for A.Y. 2011-12, leading to its dismissal. The primary issue raised in the Revenue's appeal pertained to the disallowance made under section 14A of the Act. The Assessing Officer had computed the disallowance for both years using rule 8D(2)(iii) of the I.T. Rules at 0.5% of the average value of investments. However, the CIT(A) observed that the investments were predominantly in subsidiary companies, associates concerns, and partnership firms where the assessee held a partnership interest. Consequently, the CIT(A) directed the Assessing Officer to calculate the disallowance at 5% of the fixed/semi-variable expenses incurred by the assessee.

During the hearing, the counsel highlighted that a similar disallowance had been made by the Assessing Officer in A.Y. 2009-10, which was subsequently reduced to 5% of fixed/semi-variable expenses by the CIT(A)'s order. The Revenue had challenged this decision before the Tribunal, which upheld the CIT(A)'s order in a previous case related to A.Y. 2009-10. The counsel argued that the CIT(A) had applied the same rationale in the current years as well. The Departmental Representative did not dispute the facts presented by the counsel. Consequently, the Tribunal, in line with its decision for A.Y. 2009-10, affirmed the CIT(A)'s order for the years under consideration.

In conclusion, the appeals filed by both the assessee and the Revenue were dismissed by the Tribunal, upholding the CIT(A)'s decision regarding the disallowance under section 14A of the Act. The order was pronounced on 20.2.2017.