2019 (5) TMI 1446 - AT - Income Tax

Addition u/s. 14A r.w.rule 8D - HELD THAT - As far as disallowance of interest expenses under Rule 8D(2)(ii) of the Rules is concerned it has been held in the case of CIT vs Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and CIT vs HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT that where interest free funds and overdraft and loans taken are available with an assessee then a presumption would arise that the investments would be out of the interest free funds generated or available with the assessee if the interest free funds were sufficient to meet the investments. In the case of Principal CIT vs Rasoi Ltd. 2017 (2) TMI 863 - CALCUTTA HIGH COURT . In view of the aforesaid legal position we direct the Assessing officer to examine the assessee s own funds and reserves and if the AO finds that the interest free funds were sufficient to meet the investments no disallowance would be made under Rule 8D(2) (ii) of The Rules. As far as Rule 8D(2)(iii) of the Rules is concerned it has been held in the case of DCIT vs REI Agro Ltd. 2013 (5) TMI 582 - ITAT KOLKATA that it is only the investment which yielded tax free income that should be considered for working out the average value of investment while applying the Rule 8D(2)(iii) of the Rules. This order of the tribunal has been confirmed by the decision of Hon ble Calcutta High Court . 2013 (12) TMI 1517 - CALCUTTA HIGH COURT . We direct the AO to exclude investments which had not yielded any exempt dividend income during the previous year while working out the average value of investments for the purpose of applying Rule 8D(2)(iii) of the Rules. Addition on account of interest paid to loan creditors - HELD THAT - Assessee has furnished the relevant details i.e confirmation of bank statement ROC details before the AO . Neither the AO nor the CIT(A) has considered the same. We note that details as filed by the assessee have not been considered in any of the two proceedings i.e. neither before the AO nor before the ld.CIT(A). Therefore we deem it fit and proper in this peculiar facts and circumstances that larger interest of justice would be served in case ld. AO decides the entire issue once again taking into consideration the details which already submitted by the assessee before him. We also direct the assessee to submit the evidences/explanation to prove its boanfide. Ground no. 2 raised by the assessee is allowed for statistical purpose

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D.
2. Addition on account of interest paid to loan creditors.

Analysis:

Issue 1: Disallowance under section 14A read with Rule 8D
The appeal filed by the Assessee challenged the order passed by the Commissioner of Income Tax (Appeals) confirming the addition made by the Assessing Officer under section 14A read with Rule 8D of the Income Tax Act, 1961. The Assessee contended that the disallowance was erroneous. The Appellate Tribunal considered the legal position established by various judicial decisions. Referring to the judgments of the Bombay High Court and the Calcutta High Court, the Tribunal held that if interest-free funds were sufficient to meet the investments, no disallowance should be made under Rule 8D(2)(ii) of the Rules. Additionally, concerning Rule 8D(2)(iii), the Tribunal directed the Assessing Officer to exclude investments that had not yielded any exempt dividend income while calculating the average value of investments. The Tribunal's decision was based on legal precedents and directed the Assessing Officer to re-examine the issue in light of the established legal principles.

Issue 2: Addition on account of interest paid to loan creditors
The second ground of appeal raised by the Assessee related to the addition of a specific amount on account of interest paid to loan creditors. Both the Assessee's counsel and the Revenue's representative acknowledged that the Assessee had not provided sufficient documents to prove the identity, genuineness, and creditworthiness of the creditors before the Assessing Officer. Consequently, the interest paid to loan creditors was disallowed by the Assessing Officer. The Assessee expressed the intention to submit relevant documents and evidence to establish the credibility of the creditors. The Tribunal noted that the details submitted by the Assessee were not considered by either the Assessing Officer or the Commissioner of Income Tax (Appeals). In the interest of justice, the Tribunal directed the Assessing Officer to reconsider the issue, taking into account the details already submitted by the Assessee. The Assessee was also instructed to provide further evidence to substantiate its claims. The Tribunal allowed the second ground of appeal for statistical purposes. Ultimately, the appeal of the Assessee was allowed for statistical purposes, and the order was pronounced in an open court on a specified date.

This detailed analysis of the legal judgment highlights the key issues involved, the arguments presented by the parties, the legal principles applied by the Tribunal, and the final decision rendered in the case.