2018 (9) TMI 1237 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D(2)(ii) - Held that - AO has only made some general observations on the fund flow position; but could not point out any specific transactions OR identify any funds flow, specifically linked to diversion of interest bearing funds to share investment activity. The Assessing Officer has not controverted the assessee s stated position that it had sufficient own funds and reserves for investment in mutual funds and shares and that its interest bearing fund were specifically invested in those assets for which purpose it was taken for non-exempt business activity which is not within the purview of section 14A. No reason to interfere with or deviate from the findings of the learned CIT (Appeals) in deleting the disallowance u/s 14A r.w. Rule 8D(2)(ii). Consequently, grounds raised by Revenue are dismissed.

Summary

Issues:
1. Disallowance under Section 14A r.w. Rule 8D(2)(ii) - ?1,21,36,406.
2. Disallowance under Section 14A r.w. Rule 8D(iii) - ?18,73,808.

Issue 1: Disallowance under Section 14A r.w. Rule 8D(2)(ii) - ?1,21,36,406:

The appeal by the Revenue was against the order of the Commissioner of Income Tax (Appeals)-4 for the Assessment Year 2014-15. The assessee company, engaged in providing engineering services to hospitals, had filed appeals challenging the additions made under Section 14A r.w. Rule 8D. The Commissioner partially allowed relief by deleting a disallowance under Rule 8D(2)(ii) but upheld another disallowance under Rule 8D(iii). The Revenue raised grounds against the Commissioner's order, arguing that the disallowance under Rule 8D(2)(ii) should not have been deleted. The Tribunal considered the submissions and held that the disallowance made by the Assessing Officer could not be upheld as the investment in mutual funds and shares was from the assessee's own funds, not interest-bearing funds. The Tribunal agreed with the Commissioner's findings that there was no specific link between interest-bearing funds and share investments, leading to the deletion of the disallowance. Consequently, the Revenue's appeal was dismissed.

Issue 2: Disallowance under Section 14A r.w. Rule 8D(iii) - ?18,73,808:

The Commissioner had upheld a disallowance of ?18,73,808 under Section 14A r.w. Rule 8D(iii) in the order being appealed. However, the Tribunal's detailed analysis focused on the disallowance under Rule 8D(2)(ii) and did not specifically address the disallowance under Rule 8D(iii) in the provided judgment. Therefore, the Tribunal's decision and reasoning were centered on the disallowance under Rule 8D(2)(ii), resulting in the dismissal of the Revenue's appeal for the Assessment Year 2014-15.

This comprehensive analysis of the judgment highlights the grounds of appeal, the arguments presented, and the final decision reached by the Tribunal regarding the disallowances made under Section 14A r.w. Rule 8D for the Assessment Year 2014-15.