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2017 (8) TMI 1181 - AT - Income TaxDisallowance u/s 14A - rule 8D applicability - interest expenditure - Held that - Assessing Officer and the CIT(A) has not given a particular finding about the investments. The CIT(A) has only made observation that the conclusion made by the AO while passing the assessment order for AY 09-10, where the disallowance u/s 14A was limited to that made under rule 8D(2)(iii) only and there was no new finding recorded by the AO while passing the present Assessment order. The CIT(A) has not at all taken the cognizance about the particulars of investment and its expenses while observing that Rule 8D(2)(ii) can be invoked only when the assessee has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt, which is not the case here. Hence, no disallowance is warranted under Rule 8D(2)(ii). Thus, Ground No. 1 & 2 needs to be look into and remitted back to the Assessing Officer for fresh adjudication.
Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act, 1961. 2. Deletion of addition on account of disallowance of royalty expenses. Detailed Analysis: 1. Deletion of Disallowance under Section 14A: The Revenue challenged the deletion of a disallowance of ?16,69,884 made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961. The AO had invoked Rule 8D(2)(ii) to compute the disallowance, arguing that the assessee had incurred interest expenses on loans which were not directly attributable to any particular income or receipt. The CIT(A) held that Rule 8D(2)(ii) could only be invoked if the assessee had incurred expenditure by way of interest not directly attributable to any particular income, which was not the case here. The CIT(A) noted that the investments in mutual funds, from which the exempt income was earned, were made out of funds received from a public issue and not from borrowed funds. Thus, no disallowance was warranted under Rule 8D(2)(ii). However, the CIT(A) confirmed the disallowance of ?10,55,223 under Rule 8D(2)(iii) for indirect expenses. The Tribunal observed that neither the AO nor the CIT(A) had provided specific findings about the investments and remitted the matter back to the AO for fresh adjudication, ensuring the assessee is given an opportunity to be heard. 2. Deletion of Addition on Account of Disallowance of Royalty Expenses: The AO had disallowed 25% of the royalty expenses, amounting to ?48,12,352, treating it as capital expenditure. The AO argued that the payment for technical collaboration and license included technical assistance, training, and education, which provided an enduring benefit. The CIT(A) relied on previous ITAT decisions in the assessee's own case for earlier assessment years (AY 2005-06, 2006-07, and 2008-09), where it was held that the royalty payments were recurring and revenue in nature since they were determined based on the quantity and value of production. The CIT(A) noted that the facts of the case were consistent with those of the earlier years and deleted the addition made by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the issue of royalty expenses was covered in favor of the assessee by the ITAT's decisions for the earlier years, and dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the issue of disallowance under Section 14A back to the AO for fresh adjudication while upholding the CIT(A)'s decision on the deletion of the addition on account of royalty expenses. The order was pronounced in the open court on 04th July 2017.
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