2019 (10) TMI 444 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - HELD THAT - The assessee has non-interest bearing funds also which were more than the investments made by assessee. Thus, no cost of fund is involved in earning the exempted income. Further, in this year assessee has no net expenditure as there is a net interest income and in earlier year, no similar disallowance out of interest have been made. The reliance of the assessee on the decision of UMIL Share Stock Broking Services Ltd. 2018 (8) TMI 913 - ITAT KOLKATA clearly apply to the facts of the case of the assessee. No justification for the authorities below to disallow interest expenditure relating to exempted income. We, accordingly, set aside the Orders of the authorities below and delete the addition. As regards other addition assessee has not filed any reply before the authorities below. No details or explanation have been filed. No explanation have been given regarding the activities carried out by the assessee for earning the exempted income. Since assessee earned substantial dividend income, therefore, assessee was bound to incur certain expenditure to earn exempted income, therefore, in the absence of any explanation or any details submitted by assessee before the authorities below as well as before the Tribunal, disallowance is confirmed. Part of this ground is dismissed. Ground No.1 is partly allowed. Addition on account of deduction claimed u/s 36(1)(viia) - HELD THAT - We are of the view that issue is covered in favour of the assessee by the aforesaid decision of the Tribunal in the case of assessee in which the Order of Tribunal for the A.Y. 2011-2012 have also been considered which is the sole basis for the A.O. to make the disallowance. We, accordingly, following the Order of the Tribunal above, set aside the Orders of the authorities below and delete the entire addition. In the result, Ground Nos.2 and 3 of the appeal of Assessee are allowed.

Summary

Issues involved:
1. Disallowance of expenditure under section 14A read with Rule 18D against exempted income.
2. Disallowance of provision for standard asset under section 36(1)(viia) of the Income Tax Act.

Issue 1 - Disallowance of expenditure under section 14A:
The appeal was against the disallowance of ?6,86,000 under section 14A read with Rule 18D against exempted income of ?22,75,000 for the A.Y. 2012-2013. The Assessing Officer disallowed interest and other expenses debited to the Profit & Loss Account. The assessee challenged the addition before the Ld. CIT(A), arguing that the disallowance was made without recording satisfaction. The A.O. had not considered the non-interest bearing funds of the Bank and the absence of net interest expenditure. The Ld. CIT(A) dismissed the appeal, but the ITAT Delhi set aside the Orders of the authorities below and deleted the addition of ?3,48,000 related to interest expenditure. However, the addition of ?3,38,000 was confirmed due to lack of explanation and details provided by the assessee.

Issue 2 - Disallowance of provision for standard asset under section 36(1)(viia):
The A.O. disallowed ?2,56,80,000 on account of deduction claimed under section 36(1)(viia) as provision for standard asset under the Head "Provision for Bad & Doubtful Debt" was debited to the P & L A/c. The assessee did not offer any explanation, leading to confirmation of the addition by the Ld. CIT(A). The ITAT Delhi referred to a previous decision in favor of the assessee for the A.Y. 2010-2011 and held that the addition should be deleted. The Tribunal set aside the Orders of the authorities below and deleted the entire addition of ?2,56,80,000 under section 36(1)(viia) based on the precedent.

In conclusion, the ITAT Delhi partly allowed the appeal of the Assessee by deleting the addition related to interest expenditure but confirming the addition concerning the provision for standard asset. The Orders of the authorities below were set aside for both issues, and the appeal was partly allowed.