2018 (9) TMI 870 - AT - Income Tax

Disallowance u/s 14A - Held that - Tribunal has recorded a finding that own funds in the shape of Share Capital & Reserves of ₹ 10004.10 Lacs were much more than investment of ₹ 8094.70 Lacs and therefore, interest disallowance was not justified in terms of various judicial pronouncements. Upon perusal of financial statements of impugned AY, as placed on record, we find that there is no change in the figures of investment and the same remain static at ₹ 8094.75 Lacs. This being the position, interest disallowance as made by Ld. AO stand deleted and the grounds raised, in this regard stand allowed. So far as the expense disallowance - submission of the assessee is that only income yielding investments are to be considered to arrive at disallowance - We direct Ld.AO to recompute expense disallowance u/r 8D(2)(iii) by considering only those investments which have yielded exempt income during the impugned AY. The assessee is directed to provide requisite computations, in this regard. The ground stand partly allowed.

Summary

Issues Involved:
1. Disallowance u/s 14A for Assessment Year 2012-13.
2. Disallowance of interest and expenses u/r 8D(2)(ii) and u/r 8D(2)(iii) respectively.
3. Interpretation of judicial pronouncements and applicability of statutory provisions.

Detailed Analysis:
Issue 1: The appeal contested the disallowance u/s 14A for the Assessment Year 2012-13. The assessee, a resident corporate entity engaged in Investment Banking, challenged the disallowance of &8377; 60.08 Lacs under section 14A made by the Ld. Commissioner of Income-Tax (Appeals)-09 [CIT(A)].

Issue 2: The disallowance comprised of interest disallowance u/r 8D(2)(ii) for &8377; 19.60 Lacs and expense disallowance u/r 8D(2)(iii) for &8377; 40.47 Lacs. The assessee contested these disallowances, arguing that certain expenses were not incurred for earning exempt income or related to investments in shares. The Ld. CIT(A) directed the AO to exclude such expenses and delete the interest disallowance if sufficient funds were available.

Issue 3: The Ld. AR relied on a decision of the Hon'ble ITAT, Kolkata, in a specific case to support the contention that no expenditure was incurred for earning dividend income. However, the Tribunal emphasized that expenses related to investments, including administrative expenses, must be considered. The Ld. AR also cited a decision of the Delhi Tribunal (Special Bench) regarding the consideration of only income-yielding investments for expense disallowance.

The judgment concluded by deleting the interest disallowance as the own funds exceeded investments and directing the AO to recompute the expense disallowance by considering only income-yielding investments. The appeal was partly allowed based on the findings and interpretations of the relevant judicial pronouncements and statutory provisions.

This comprehensive analysis outlines the issues related to the disallowance u/s 14A, the specific disallowances under rule 8D(2)(ii) and 8D(2)(iii), and the interpretation of judicial decisions and statutory provisions to arrive at a reasoned judgment.