2021 (2) TMI 228 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee in the revised return of income has excluded 0.5% of average value of investments - HELD THAT - Section 14A disallowance was rightly claimed by the assessee and the CIT(A) has properly made a partial allowance of the said claim. As per Section 14A read with Rule 8D(2), those investments which have actually yielded exempt income during the relevant year, shall alone be taken into consideration and thus was rightly excluded while determining average value of investments under Rule 8D(2). CIT(A) observed that the assessee claimed deduction on interest paid for taking IT equipment on Finance lease for period of 36 months. CIT(A) held that in view of decisions of ACB India Ltd. Vs. ACIT 2015 (4) TMI 224 - DELHI HIGH COURT and CIT(A) vs. Holcim India 2014 (9) TMI 434 - DELHI HIGH COURT claim of deduction under Rule 8D(2) (ii) was upheld. CIT(A) further observed that claim of deduction of ₹ 3,71,603/- u/s 37(1) on interest paid to HP Financial Services (India) Pvt. Ltd. for taking IT equipment on financial lease for period of 36 months being specific purpose borrowings as treated under Rule 14A read with Rule 8D(2)(ii). Thus, CIT(A) made total disallowance u/s 14A read with Rule 8D accordingly. Thus, Ground No. 1 of Revenue s appeal is dismissed. Addition u/s 37 - expenses in connection with new line of business - AR submitted that from the books of accounts and the balance-sheet it was clearly mentioned that from October 2011, the assessee has sought the transaction related to borrowing to the subsidiary companies and, therefore, the expenditure was rightly claimed u/s 37(1) - HELD THAT - Fact remains undisputed that out of total lease rental expense of ₹ 52,79,02,826/-which was incurred during the present assessment year was recovered by the assessee company from the subsidiary company amounting to ₹ 47,59,99,859/- and balance amount was incurred by the assessee towards rendering support service to subsidiaries companies - assessee company also incurred rental expenses towards providing leased accommodation to its employees and the copies of agreements entered between the landlord and the assessee company was examined by the CIT(A) which was totally overlooked by the Assessing Officer. As regards electricity and water expenses along with repair and maintenance expenditure, the same were also demonstrated by the assessee company with the details before the CIT(A) and the Assessing Officer that these are allowable expenses under Section 37(1) of the Act. The CIT(A) has given a detailed finding. Thus, there is no interference of the finding of the CIT(A). - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D
2. Allowance of expenditure under section 37 of the Income Tax Act

Issue 1: Disallowance under section 14A read with Rule 8D
The Revenue appealed against the CIT(A)'s order restricting the disallowance under section 14A read with Rule 8D. The Assessing Officer had made an addition based on the Tax Auditor's calculation, which the assessee contested in the revised return. The Assessing Officer rejected the revised computation, leading to the disallowance. The CIT(A) partly allowed the appeal, considering the investments and exempt income. The CIT(A) upheld the disallowance under Rule 8D(2)(ii) for interest paid on IT equipment finance lease. The total disallowance under section 14A read with Rule 8D was determined after due consideration of the investments and expenses. The Tribunal found the CIT(A)'s order appropriate, dismissing the Revenue's appeal.

Issue 2: Allowance of expenditure under section 37 of the Income Tax Act
Regarding the allowance of expenditure under section 37, the Revenue contended that the new line of business expenses was not justified by the assessee. The Assessing Officer made an addition under section 37 due to the lack of justification for increased expenses. The CIT(A) examined the details and upheld the claim under section 37(1) for certain expenses related to subsidiary transactions. The Tribunal noted the cessation of support functions by the assessee and the recovery of lease rental expenses from subsidiaries. The CIT(A)'s detailed findings on rental, electricity, water expenses, and repair and maintenance were supported by the Tribunal, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT(A)'s order, emphasizing the proper consideration of disallowances and expenses under the Income Tax Act.