2016 (7) TMI 1041 - AT - Income Tax

Disallowance u/s 14A - Held that - We find that Hon ble Bombay High Court in the case of Reliance Utilities & Power Ltd. reported at (2009 (1) TMI 4 - BOMBAY HIGH COURT ) has held that if there are funds available, both interest-free and overdraft and / or loan taken, then a presumption would arise that investments would be out of interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. Before us, ld.Sr.DR has not placed any contrary binding decision in its support. no disallowance of interest u/s 14A of the Act can be made in the present case. As far as the issue of net interest for the purpose of disallowance u/s.14A is concerned, we find that the Coordinate Bench of Tribunal in the case of Safar Reality Pvt.Ltd. vs. ACIT (2013 (11) TMI 1588 - ITAT AHMEDABAD) has approved the theory of netting off of interest income with interest expenditure. Considering the totality of the aforesaid facts, we are of the view that in the present case, no disallowance u/s.14A is called for and thus direct the deletion of addition made by the AO. Thus, the ground(s) of assessee are allowed. As far as the appeal of Revenue for AY 2009-10 is concerned, since in AYs 2008-09 & 2009-10 the ground of assessee is decided in assessee s favour, the ground raised by Revenue has become academic and, therefore, requires no adjudication and therefore dismissed. - Decided in favour of assessee.

Summary

Issues:
- Disallowance u/s 14A of the Income Tax Act for Assessment Years 2008-09 and 2009-10.
- Adjustment of disallowance u/s 14A while computing MAT profits u/s 115JB.

Analysis:
1. Disallowance u/s 14A for Assessment Years 2008-09 and 2009-10:
- The appeals involved two separate orders of the Commissioner of Income Tax (Appeals) related to AYs 2008-09 & 2009-10.
- The main issue was the disallowance of expenses u/s 14A of the Income Tax Act.
- The Assessing Officer (AO) determined the disallowance based on Rule 8D of the Income Tax Rules, 1962.
- The Commissioner upheld the AO's decision, citing the applicability of Rule 8D from AY 2008-09 onwards.
- The appellant argued that no disallowance should be made as investments were from interest-free funds, citing relevant case laws.
- The Tribunal agreed with the appellant, citing the Bombay High Court's decision and approved the netting off of interest income with interest expenditure.
- Consequently, the Tribunal directed the deletion of the addition made by the AO, allowing the appeals of the Assessee.

2. Adjustment of disallowance u/s 14A while computing MAT profits u/s 115JB:
- The Revenue's appeal for AY 2009-10 focused on this adjustment.
- Since the Assessee's grounds were decided in their favor, the Revenue's ground became academic and was dismissed.
- The Tribunal allowed the appeals of the Assessee and dismissed the appeal of the Revenue.

This detailed analysis covers the issues of disallowance u/s 14A for the mentioned assessment years and the adjustment of disallowance while computing MAT profits, along with the arguments presented, relevant case laws cited, and the final decision by the Tribunal.