2017 (6) TMI 827 - AT - Income Tax

Disallowance u/s 14A - Held that - Since the investment was made out of surplus funds, no further disallowance is required to be made u/s 14A of the Act as section 14A provides for disallowance of expenditure incurred in relation to income which does not form the part of the total income, meaning thereby, there should be direct nexus between the actual expenditure incurred for the purpose of earning tax free income. The proximity cause of disallowance u/s 14A is its relationship with the tax exempt income. Wherever the expenses incurred has no relationship with the income not includible in the total income, there cannot be any occasion to invoke the provision for making the disallowance u/s 14A of the Act. In the light of the foregoing discussion, it can be concluded that the expenditure, which can be disallowed u/s 14A should be actually incurred. It is also noted that during assessment proceedings, the report of the accountant, specifying the basis for calculating the amount disallowable u/s 14A of the Act was submitted by the assessee and the Ld. Assessing Officer without rejecting the report mechanically applied Rule-8D and computed the amount of disallowance, which cannot be said to be justified. At best, the disallowance may be restricted as suo-moto made by the assessee. Thus, no further disallowance was required to be made.- Decided in favour of assessee. TDS credit - Held that - Two parties deducted TDS but did not hand over the TDS certificate to the assessee. It was also explained that the assessee wrote to the Assessing Officer of those parties with respect to this claim but there was no response from the Assessing Officer also. The Ld. Counsel relied upon section 205 of the Act. In such a situation, we remand this ground to the file of the Ld. Assessing Officer to examine the claim of the assessee and if felt necessary, The Ld. Assessing Officer may call report from the Assessing Officer of those parties, as prayed by the assessee. The ld. Assessing Officer may also send notices to the concerned parties and examine them with respect to deduction of tax at source, if so required. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in support of its claim. Thus, this ground of the assessee allowed for statistical purposes.

Summary

Issues Involved:
1. Maintainability of Revenue's appeal due to tax effect below the prescribed monetary limit.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Claim of TDS credit by the assessee.

Analysis of the Judgment:

1. Maintainability of Revenue's Appeal:
The Revenue's appeal (ITA No.6648/Mum/2011) was dismissed as not maintainable because the total tax effect was below the prescribed monetary limit of ?10 lakh. This decision was based on CBDT Instruction No.21 of 2015, which directs the Department not to file appeals in cases where the tax effect does not exceed ?10 lakh before ITAT.

2. Disallowance under Section 14A:
The assessee's appeal (ITA No.5732/Mum/2011) primarily contested the disallowance of ?1,78,69,431/- under Section 14A read with Rule 8D. The assessee argued that the total exempt income was ?1.13 crores, and they had already disallowed ?6.36 lakhs for interest and ?8.74 lakhs for indirect expenses. The assessee claimed that own funds were in excess of borrowed funds, citing decisions from HDFC Bank Ltd. vs DCIT and CIT vs Reliance Utilities and Power Ltd. The Tribunal considered the provisions and legislative history of Section 14A, emphasizing that disallowance under this section requires actual expenditure incurred in relation to exempt income. The Tribunal concluded that the assessee's own funds exceeded borrowed funds, and there was no basis for further disallowance. The Tribunal relied on the jurisdictional High Court's decisions, which supported the assessee's claim that no disallowance under Section 14A was required if investments were made from surplus funds. Consequently, the Tribunal allowed this ground of the assessee.

3. Claim of TDS Credit:
The assessee raised an additional ground regarding TDS credit of ?22,26,540/- from Dear Investment Pvt. Ltd. and Lovely Investment Pvt. Ltd. The Tribunal noted that this ground was raised before the Commissioner of Income Tax (Appeal) and admitted the additional ground. The assessee explained that TDS was deducted by these parties but TDS certificates were not provided. The Tribunal remanded this issue to the Assessing Officer to examine the claim and, if necessary, to call for a report from the Assessing Officer of those parties. The Assessing Officer was directed to give the assessee an opportunity to furnish evidence in support of its claim.

Final Decision:
The appeal of the Revenue was dismissed as not maintainable due to the tax effect being below the prescribed limit. The appeal of the assessee was partly allowed for statistical purposes, with specific directions for the Assessing Officer to re-examine the TDS credit claim.