2017 (9) TMI 974 - HC - Income Tax

Disallowance under Section 14A - rule 8D applicability - allocation of interest expenditure towards earning of exempt income - Held that - Once the Tribunal has approached the matter on the basis that the First Appellate Authority could have applied the provision, namely, Section 14A as also Rule 8D with effect from the Assessment Year 2008-09, but yet restricted the disallowance to ₹ 2,10,756/on facts, then, we do not think that any of the questions proposed are substantial questions of law. All the more, when the tax effect was meagre. We do not think that any larger issue or wider question has been dealt with by the Tribunal nor its observations raise otherwise a substantial question of law. In the circumstances, if the matter is approached from the above angle, this appeal need not be entertained. It is dismissed.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding disallowance under Section 14A of the Income Tax Act, 1961 r/w Rule 8D for Assessment Year 2009-10.

Analysis:
1. The Revenue appealed the order of the Income Tax Appellate Tribunal regarding the disallowance under Section 14A of the Income Tax Act, 1961 r/w Rule 8D for the Assessment Year 2009-10. The Tribunal noted that the assessee had sufficient own funds for investments and found no reason for allocation of interest expenditure towards earning exempt income. The disallowance was reduced to ?2,10,756 from ?9,52,147 by the Tribunal.

2. The Assessing Officer initially disallowed ?1,53,19,575 under Section 14A r/w Rule 8D, which was challenged by the assessee before the Commissioner of Income Tax (Appeals). The Commissioner restricted the disallowance to ?9,52,147. Both the Revenue and the assessee appealed to the Tribunal. The Tribunal found no reason for interest expenditure allocation but allowed for allocation of administrative and other expenses, reducing the disallowance to ?2,10,756.

3. The Tribunal observed that the assessee had sufficient own funds for investments, with a balance-sheet showing own funds of ?101.31 crores against investments of ?69.08 crores. The Tribunal held that no interest expenditure allocation was necessary for earning exempt income but allowed for administrative and other expenses allocation, leading to the reduced disallowance amount.

4. The First Appellate Authority considered the company's investments in shares and securities, noting the sufficient own funds available. The Authority rejected the argument that no further disallowance was required under Section 14A, applying Rule 8D to work out the disallowance amount. The disallowance was calculated at ?9,52,147 by the Authority.

5. The Tribunal concluded that the questions proposed by the Revenue were not substantial questions of law, especially considering the meager tax effect. As the Tribunal had appropriately considered the facts and circumstances of the case, the appeal was dismissed.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the proceedings and outcomes related to the challenge of the order passed by the Income Tax Appellate Tribunal.