2016 (8) TMI 411 - AT - Income Tax

Disallowance u/s 14A - Held that - AO is directed to restrict the administrative disallowance to 5% of the dividend income. Effective ground of appeal is decided in favour of the assessee in part. Disallowance under the head interest expenditure - Held that - While deciding the appeal of the assessee, we have held that assessee had sufficient own funds to make investments and therefore, there was no justification for disallowance under the head interest expenditure. Following the order of the Tribunal for the earlier years, we decide the effective ground of appeal against the AO.

Summary

Issues involved:
1. Disallowance under section 14A of the Income Tax Act.
2. Legal infirmity in the disallowance made by the assessee.
3. Justification for not admitting additional claim by the First Appellate Authority.
4. Disallowance of interest expenditure and administrative expenses.
5. Appeal against the addition made by the Assessing Officer.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The Assessing Officer (AO) made a disallowance under section 14A of the Act, read with Rule 8D of the Rules, which was challenged by the assessee in cross-appeals. The First Appellate Authority (FAA) partly allowed the appeal filed by the assessee, holding that the disallowance made by the AO was not justified. The Tribunal referred to previous orders and upheld the FAA's decision, emphasizing that the disallowance was not sustainable due to the availability of sufficient own funds for investments.

Issue 2: Legal infirmity in the disallowance made by the assessee:
The assessee argued that the suo motu disallowance made by them was suffering from legal infirmity. The FAA held that the disallowance complied with the provisions of section 14A of the Act. The Tribunal, considering previous orders and the availability of interest-free funds, upheld the FAA's decision, stating that no further disallowance was warranted.

Issue 3: Justification for not admitting additional claim by the First Appellate Authority:
The Authorised Representative argued that the FAA should have accepted the plea raised by the assessee for the first time before him, based on previous judgments and the availability of own funds for investments. The Tribunal upheld the FAA's decision, emphasizing the adequacy of own funds and dismissing the AO's appeal.

Issue 4: Disallowance of interest expenditure and administrative expenses:
The AO made disallowances under section 14A for interest expenditure and administrative expenses. The FAA directed the AO to delete the addition made for interest expenditure, considering the availability of interest-free funds. The Tribunal, following previous orders, confirmed the FAA's decision regarding interest expenses and restricted administrative expenses to 5% of dividend income.

Issue 5: Appeal against the addition made by the Assessing Officer:
The AO's addition was challenged in an appeal, which was partly allowed by the Tribunal. The Tribunal held that the assessee had sufficient own funds for investments, leading to the dismissal of the AO's appeal.

In conclusion, the Tribunal's judgment upheld the FAA's decision in part, emphasizing the availability of own funds for investments and dismissing unjustified disallowances made by the Assessing Officer. The Tribunal referred to previous orders and legal provisions to support its decision, ultimately deciding in favor of the assessee on various grounds.