2018 (11) TMI 777 - AT - Income Tax

Exemption of interest income u/s. 10(15)(iv) - Interest earned on bonds issued by IIFCL - Held that - We observe that such interest income is exempted as per CBDT Notification No.9/2009 dated 07/01/2009. We also observe that the interest earned on bonds issued by IIFCL has been claimed and allowed as 10(15)(iv) of the Act in subsequent years, i.e., in AY 2012-13, AY 2013-14 and AY 2014-15. The facts and law pertaining to the said matter remain the same throughout all the years including the year under consideration. The Revenue Authorities have consistently accepted that the interest earned on bonds issued by IIFCL is exempt u/s. 10(15)(iv) of the Act in the subsequent years. The principle of consistency is applicable in the instant case and the facts and law remaining the same, a contrary view on the said matter in the year under consideration would result in injustice to the assessee. Accordingly, we direct the AO to allow exemption of interest income u/s. 10(15)(iv) of the IT Act. Disallowance made u/s.14A r.w.Rule 8D2(iii) - Held that - We observe that AO has taken average investment without reducing there from investment not earning any exempt income. In view of the decision of ITAT Special Bench in case of Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI , we direct the AO to exclude investment not earning any exempt income while computing disallowance under Rule 8D(2)(iii). TDS credit - Held that - We direct the AO to give TDS credit of ₹ 3,46,890/- after due verification.

Summary

Issues:
1. Exemption of interest income earned on tax-free bonds under section 10(15)(iv) of the Income-tax Act, 1961.
2. Disallowance under Rule 8D(2)(iii) of the Income-tax Rules, 1962.
3. TDS credit discrepancy.

Issue 1: Exemption of Interest Income:
The appeal concerned the exemption of interest income of ?1,30,99,452 earned on investments in tax-free bonds issued by India Infrastructure Finance Co. Ltd. The assessee inadvertently offered this income to tax for AY 2011-12. The AR contended that the interest was exempt under section 10(15)(iv) and should be allowed as such. The AR relied on relevant case law, including the decision of the Hon’ble Supreme Court in National Thermal Power Company Ltd. The AR also cited the decision of the Hon’ble Bombay High Court in CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd., supporting the assessee's right to claim deductions before appellate authorities even if not claimed in the tax return.

Issue 2: Disallowance under Rule 8D(2)(iii):
The Tribunal observed that the AO had computed disallowance under Rule 8D(2)(iii) without excluding investments not earning any exempt income. Referring to the decision of the ITAT Special Bench in Vireet Investment, the Tribunal directed the AO to exclude such investments while calculating the disallowance under Rule 8D(2)(iii).

Issue 3: TDS Credit Discrepancy:
The appeal also raised the issue of TDS credit, where the AO allowed a credit of ?2,51,56,066 instead of the claimed amount of ?2,55,02,956, resulting in a shortfall of ?3,46,890. The Tribunal directed the AO to verify and provide the correct TDS credit of ?3,46,890 to the assessee.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to exempt the interest income under section 10(15)(iv), exclude certain investments while computing disallowance under Rule 8D(2)(iii), and provide the correct TDS credit to the assessee. The decision was based on the principles of consistency, relevant case law, and proper application of tax provisions.