2018 (11) TMI 1424 - AT - Income Tax

Disallowance u/s 14A r.w.s. 8D - Held that - We find that in the assessee s own case, this Tribunal has already held that the disallowance under Rule 8D is to be computed only on the investments which have yielded exempt income and not on the entire investments. CIT(A) has accordingly computed the disallowance. Rule 8D has come into force w.e.f 24th March, 2008 and the Hon ble Bombay High Court in the case of ITO vs. Daga Capital 2008 (10) TMI 383 - ITAT MUMBAI has held that the said provision is applicable prospectively. The decision relied upon by the Assessee is for the A.Y. 2005-06 as is evident from para 3.1 of the said judgment, therefore, the said decision is not applicable to the case of the assessee and we see no reason to interfere with the order of the CIT(A) - Decided against assessee.

Summary

Issues involved:
1. Disallowance under Rule 8D(ii) for investments made.
2. Connection between investment in shares and borrowed funds.
3. Allocation of remuneration of Executive Directors to specific business divisions.
4. Disallowance of management expenses related to specific division.
5. Application of Rule 8D for computing disallowance under Section 14A.

Analysis:
1. The appeal was against the CIT(A)'s order directing the AO to recalculate the disallowance under Rule 8D(ii) instead of providing full relief due to the appellant's excess funds compared to investments. The Tribunal noted the appellant's argument that no disallowance should be made under Rule 8D(2)(ii) as there was no direct or remote connection between borrowed funds and investments in shares. However, the Tribunal upheld the CIT(A)'s decision, citing the appellant's own case precedent and the prospective applicability of Rule 8D since March 24, 2008. The Tribunal dismissed the appeal, rejecting Grounds 1 to 5.

2. Grounds 6 and 7 were not pressed by the appellant during the hearing, leading to their rejection. The issue of apportioning remuneration of Executive Directors to the shipping division was raised by the appellant, arguing that no Executive Director was in charge of the shipping division. However, this argument was not pursued during the hearing.

3. The Tribunal considered the appellant's submission regarding the disallowance under Section 14A, emphasizing that the disallowance should only apply to investments yielding exempt income. The appellant relied on a decision by the Hon'ble High Court of Gujarat in support of their argument. The Departmental Representative supported the CIT(A)'s orders. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance under Rule 8D should be computed only on investments generating exempt income, not on the entire investments. The Tribunal dismissed the appeal, citing the prospective applicability of Rule 8D and the inapplicability of the appellant's cited case law.

Overall, the Tribunal dismissed the appeal, upholding the CIT(A)'s decision on the disallowance under Rule 8D and other related issues, based on the appellant's own case precedent and the prospective application of relevant provisions.