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2019 (12) TMI 748 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D - HELD THAT - As relying on MAXOPP INVESTMENT 2018 (3) TMI 805 - SUPREME COURT CIT(A) has rightly sustained the order of the AO in including strategic investments in subsidiaries for computing disallowance u/s 14A r.w. Rule 8D(2)(iii). Therefore the ground of appeal No. 4(e) is dismissed. Also similar grounds of appeal pleading for excluding investment in group companies stating those being strategic in nature are dismissed. In respect of the other grounds of appeal we are of the considered view that the ratio laid down in Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI that only those investments are to be considered for computing average value of investment which yielded exempt income during the year has relevance in the instant case. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income earned by the assessee during the year under consideration as laid down in HSBC Investment Direct (India) Ltd. 2019 (2) TMI 731 - BOMBAY HIGH COURT M/s Empire Package Pvt. Ltd. 2016 (2) TMI 505 - PUNJAB AND HARYANA HIGH COURT .
Issues:
1. Disallowance made under section 14A by invoking Rule 8D. 2. Disregarding accounts and submissions by the appellant. 3. Disallowance of interest expenses. 4. Inclusion of strategic investments in subsidiaries for disallowance. 5. Consideration of investments yielding exempt income. 6. Limitation of disallowance under section 14A. Issue 1: Disallowance made under section 14A by invoking Rule 8D: The appellant contested the addition made by the Assessing Officer under section 14A, arguing that the CIT(A) erred in confirming the disallowance without establishing the incorrectness of the claim. The appellant emphasized that only actual expenditure related to earning tax-free income should be disallowed and that Rule 8D was applied inequitably. The Tribunal directed the AO to reexamine the disallowance in light of relevant decisions and evidence provided by the appellant. Issue 2: Disregarding accounts and submissions by the appellant: The appellant's appeal against the order of the CIT(A) involved the contention that the AO disregarded their accounts and submissions. However, the Tribunal found no merit in this ground as the AO provided detailed reasons for the disallowance under section 14A. The 2nd ground of appeal was dismissed as the AO's assessment was deemed justified. Issue 3: Disallowance of interest expenses: The CIT(A) deleted the proportionate disallowance of interest expenses under Rule 8D(2)(ii) due to the appellant's interest-free funds exceeding the investments yielding tax-free income. However, the inclusion of strategic investments in subsidiaries for disallowance under Rule 8D(2)(iii) was upheld, with directions to exclude investments in foreign subsidiaries taxable for dividend income. Issue 4: Inclusion of strategic investments in subsidiaries for disallowance: The Tribunal upheld the inclusion of strategic investments in subsidiaries for computing disallowance under section 14A. Citing the decision in Maxopp Investment Ltd. v. CIT, the Tribunal directed the AO to recompute the disallowance by excluding investments in foreign subsidiaries generating taxable dividend income. Issue 5: Consideration of investments yielding exempt income: The appellant argued that only investments yielding exempt income should be considered for computing the average value of investments. Referring to relevant decisions, the Tribunal emphasized that the disallowance under section 14A should not exceed the exempt income earned during the relevant year. Issue 6: Limitation of disallowance under section 14A: The Tribunal set aside the CIT(A)'s order on various grounds except for specific ones, directing the AO to reevaluate the disallowance in accordance with legal principles and after providing the appellant with a reasonable opportunity to be heard. The decision for the AY 2008-09 was applied to corresponding years for consistency. In conclusion, the Tribunal partly allowed the appeals for statistical purposes, emphasizing the need for the AO to reassess the disallowance under section 14A based on the principles outlined in relevant legal decisions and the evidence presented by the appellant.
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