2019 (1) TMI 942 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - Non recording of satisfaction - MAT computation - Held that - We conclude that Ld. AO, without having recorded requisite satisfaction as to how the computations made by the assessee were not correct, could not be clinched with the blanket jurisdiction to apply Rule 8D. Therefore, the additional disallowance made by AO could not be sustained on this account. The said observation is in tune with the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI whereas it has been held that for the purpose of computing disallowance, only those investments which yielded exempt income during impugned AY were to be considered. Disallowance deserves to be deleted on this account also. Another factor that goes in assessee s favor is the uncontroverted fact that own interest free funds in the shape of share capital and reserves far exceeded the investments made by the assessee and therefore, a presumption was drawn in assessee s favor that the investments were funded out of own funds rather than out of borrowed funds and therefore, no interest disallowance was called for under the circumstances. Viewed from any angle, we find no infirmity in the impugned decision of Ld. first appellate authority in directing AO to deleted additional disallowance of ₹ 388.66 Lacs while arriving at income under normal provisions as well as u/s 115JB. Penalty u/s 271(1)(c) - disallowance u/s 40(a)(ia) - Held that - Upon perusal, we find that the impugned penalty was levied by AO vide order dated 28/03/2013 on aggregate quantum additions of ₹ 13.21 Crores which comprised-off of wrong claim of business loss of ₹ 11.40 Crores and disallowance u/s 40(a)(ia) for ₹ 1.81 Crores. Upon appeal by the assessee before this Tribunal, both these issues have been remanded back to the file of CIT(A) with certain directions. Since, quantum additions against which the penalty has been levied has been set aside to CIT(A), it would be logical to set aside the consequential penalty levied against the same to the same authority. Therefore, the matter of penalty stand restored back to the file of CIT(A) for re-adjudication in the light of decision taken against the quantum additions as per the direction of the Tribunal. The appeal stands allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 14A of the IT Act.
2. Deletion of disallowance under Section 14A while computing Book Profit as per Section 115JB.
3. Condonation of delay in filing cross-objections.
4. Marked to market losses on trading in future contracts.
5. Deletion of penalty under Section 271(1)(c).

Detailed Analysis:

1. Disallowance under Section 14A of the IT Act:
The revenue contested the disallowance under Section 14A, arguing that investments in sister concerns should be considered. The assessee's cross-objection contended that the AO did not record dissatisfaction with the assessee's books before invoking Rule 8D. The tribunal noted that the AO must record satisfaction as per Section 14A(2) and (3) read with Rule 8D, as held in Godrej & Boyce Manufacturing Co. Ltd. and Maxopp Investment Ltd. The tribunal found the assessee's method of allocation logical and based on accounts, and the AO's disallowance without recording satisfaction was unsustainable. The tribunal upheld the CIT(A)'s decision to delete the additional disallowance.

2. Deletion of disallowance under Section 14A while computing Book Profit as per Section 115JB:
The tribunal agreed with the CIT(A) that the assessee's own funds exceeded the investments, and no borrowed funds were used. The CIT(A) also noted that only investments yielding exempt income should be considered, resulting in nil disallowance. The tribunal upheld the deletion of the additional disallowance under Section 115JB.

3. Condonation of delay in filing cross-objections:
The assessee filed cross-objections with a delay of 107 days, attributing it to the relief already granted in the impugned order. The tribunal found the explanation plausible and condoned the delay in the interest of justice, referencing the judgment in Collector, Land Acquisition Vs. Mst. Katiji & Others.

4. Marked to market losses on trading in future contracts:
The revenue contested the deletion of the addition of ?175.59 Lacs on account of marked to market losses. The CIT(A) deleted the addition, following the tribunal's decision in the assessee's own case for earlier years. The tribunal found no distinguishing features and upheld the CIT(A)'s decision.

5. Deletion of penalty under Section 271(1)(c):
The revenue contested the deletion of penalty of ?396.42 Lacs. The tribunal noted that the quantum additions, against which the penalty was levied, were remanded back by the tribunal in the assessee's appeal. Consequently, the tribunal logically set aside the penalty to the CIT(A) for re-adjudication in light of the quantum additions' decision.

Conclusion:
The revenue's appeals for AY 2011-12 and 2012-13 were dismissed, and the assessee's cross-objections were allowed. The revenue's appeal for AY 2009-10 was allowed for statistical purposes. The order was pronounced in the open court on 16th January 2019.