2020 (11) TMI 694 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - Huge interest free funds - HELD THAT - There was no justification for making disallowance out of interest expenditure incurred on earning exempt income. In respect of disallowance of administrative expenditure, we have gone through the order in the case of the assessee itself for the assessment year 2012-13 2018 (12) TMI 1651 - ITAT AHMEDABAD wherein the disallowance in respect of administrative expenditure was restricted to ₹ 6 lacs after taking into consideration the total exempt income earned by the assessee of ₹ 63,35,308/-. Respectfully following the decision of the Co-ordinate Bench on the similar facts and identical issue, we restrict the disallowance out of administrative expenses to ₹ 7 lacs as asssesse has earned dividend income of ₹ 77,60,108/- as against dividend income of ₹ 63,35,308/- earned in A.Y. 2012-13. Accordingly, the appeal of the assessee is partly allowed.

Summary

Issues Involved:
Disallowance of expenses under section 14A r.w.r. 8D of I.T. Rules for A.Y. 2004-05.

Detailed Analysis:

1. Background and Disallowance: The appeal pertains to the assessment year 2004-05 and arises from the order of the CIT(A)-9, Ahmedabad. The primary issue revolves around the disallowance of ?14,982,931 under section 14A r.w.r. 8D of the Income Tax Act, 1961. The original return of income was filed on 1st Nov, 2004, and scrutiny assessment under section 143(3) was completed on 30th Nov, 2006. The disallowance was made out of interest expenses and administrative expenditure under section 14A of the Act, which was confirmed by the CIT(A).

2. Judicial History: The Assessing Officer, in a subsequent order, computed the disallowance under section 14A r.w. rule 8D of the I.T. Rules to the amount of ?14,82,931. The assessee appealed against this decision, but the appeal was dismissed by the CIT(A). During the appellate proceedings, the assessee presented arguments based on a previous decision by the Co-ordinate Bench of the ITAT in a similar case for the assessment year 2012-13.

3. Arguments and Decision: The assessee contended that there was no justification for making the disallowance out of interest expenditure due to substantial interest-free funds held by the assessee. The Co-ordinate Bench's decision in the case of the assessee for the assessment year 2012-13 supported this argument, limiting the disallowance out of administrative expenditure to ?6 lakhs. Considering the facts and the decision of the Co-ordinate Bench, the Tribunal restricted the disallowance out of administrative expenses to ?7 lakhs, as the assessee had earned dividend income of ?77,60,108 in the relevant year.

4. Conclusion: The Tribunal partly allowed the appeal of the assessee, restricting the disallowance of administrative expenses based on the precedent set by the Co-ordinate Bench. The decision was pronounced on 07-10-2020, providing relief to the assessee in the matter of disallowance under section 14A r.w.r. 8D of I.T. Rules for the assessment year 2004-05.