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2019 (5) TMI 102 - AT - Income TaxDisallowance u/s 14A applying rule 8D - HELD THAT - As in the case of M/s. Turquoise Investment Finance Pvt. Ltd 2013 (6) TMI 870 - ITAT INDORE on examination of facts we find that in the instant appeal the net interest expenses (interest paid less interest income) has already been disallowed by the assessee suomoto while computing the total income. No disallowance u/s 14A was called for, for the interest expenditure and the CIT(A) has rightly deleted the disallowance u/s 14A computed for the interest expenditure. As regards the administrative expenses, only an has been claimed as expenses during the year as the remaining amount of expenditure debited to Profit Loss Account has already been added back to the income by the assessee while computing the total income. Therefore against the expenses claimed by the assessee sustaining the disallowance towards the expenses claimed by the assessee which may have been incurred directly or indirectly for maintaining the investments fetching tax free income. We accordingly partly allow the revenue s appeal and sustain the disallowance u/s 14A - Appeal of the revenue is partly allowed.
Issues:
1. Disallowance under section 14A of the Income Tax Act. 2. Correctness of claim of disallowance in return of income. 3. Direct nexus between interest expenditure and taxable income. 4. Application of Rule 8D of the IT Rules. Issue 1: Disallowance under section 14A of the Income Tax Act: The appeal pertains to the Assessment Year 2008-09, challenging the deletion of an addition of ?2,23,40,745/- on account of disallowance under section 14A of the Income Tax Act. The Assessing Officer (AO) had computed the disallowance under section 14A at ?2,23,40,745/-, which was later deleted by the Commissioner of Income Tax (Appeals) (CIT(A)). The appellant, a private limited company engaged in finance, had already disallowed a sum of ?10,17,78,678/- as net interest paid. The CIT(A) upheld this action, citing various judicial authorities supporting the disallowance method. The Tribunal observed that the disallowance under section 14A for interest expenditure was not justified, as the appellant had already made the disallowance while filing the return of income. Therefore, the Tribunal partly allowed the revenue's appeal and sustained the disallowance at ?7,50,000/- for administrative expenses. Issue 2: Correctness of claim of disallowance in return of income: The appellant had claimed that the disallowance under section 14A had already been considered in the computation of income. The AO, however, did not find merit in this claim and computed a higher disallowance amount. The CIT(A) agreed with the appellant's contention and deleted the disallowance of ?2,23,40,745/-. The Tribunal upheld the CIT(A)'s decision, stating that the appellant had appropriately considered and disallowed the interest expenditure in the return of income. Issue 3: Direct nexus between interest expenditure and taxable income: The AO had disallowed a significant amount under section 14A, citing a lack of direct nexus between interest expenditure and taxable income. The appellant argued that the interest expenses had been appropriately considered and disallowed in the return of income. The CIT(A) accepted the appellant's explanation and deleted the disallowance. The Tribunal concurred with the CIT(A)'s decision, emphasizing that the appellant had already made the necessary disallowance of interest expenditure. Issue 4: Application of Rule 8D of the IT Rules: The AO had applied Rule 8D of the Income Tax Rules to compute the disallowance under section 14A. However, the CIT(A) found that the appellant had already disallowed the interest expenses in the return of income. The Tribunal agreed with the CIT(A)'s reasoning and held that the application of Rule 8D was not justified in this case. The Tribunal partially allowed the revenue's appeal and sustained the disallowance at ?7,50,000/- for administrative expenses. In conclusion, the Tribunal upheld the deletion of the disallowance under section 14A of the Income Tax Act, as the appellant had already appropriately considered and disallowed the interest expenditure in the return of income. The Tribunal partly allowed the revenue's appeal and sustained the disallowance at ?7,50,000/- for administrative expenses.
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