2021 (8) TMI 1162 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Assessee contented that no disallowance in respect of interest expenditure should be made as the assessee has sufficient own interest free funds for making the investment, interest bearing funds were not utilized for the purpose of investments - HELD THAT - For earning tax free income, the assessee made suo-motu disallowance - During the period relevant to the assessment year under appeal no new investments were made - assessee referred to Balance Sheet to show that own funds of the assessee are much more than the investments made. Since, this argument has been made for the first time at Second Appellate stage, we deem it appropriate to restore this issue to the file of Assessing Officer to examine availability of own funds of the assessee for investment. If own funds of the assessee are sufficient to meet the investments, no disallowance under Rule 8D(2)(ii) is warranted. Ground of the appeal of assessee is allowed for statistical purposes. Disallowance of interest expenses on loan converted into share application money - HELD THAT - As relying on ROHIT EXHAUST SYSTEMS PVT. LTD. AND VICE-VERSA 2012 (10) TMI 1101 - ITAT PUNE interest paid upto the date of allotment of shares i.e. 21/12/2012 is allowable as revenue expenditure. - Decided in favour of the assessee. MAT computation on disallowance u/s 14A - Inclusion of disallowance u/s 14A r.w. Rule 8D while computing Book Profit under Section 115JB - HELD THAT - As decided in the case of ACIT vs. Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that while determining book profit under section 115JB of the Act the provision of section 14A r.w. Rule 8D are not to be invoked. Thus, in light of the decision rendered by Special Bench, the assessee succeeds.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D of the Income Tax Act.
2. Disallowance of interest on alleged share application money.
3. Disallowance under section 14A while computing book profits under section 115JB.

Analysis:

Issue 1: Disallowance under section 14A read with Rule 8D of the Income Tax Act:
The assessee challenged the disallowance made under section 14A r.w. Rule 8D. The assessee argued that it had sufficient own interest-free funds for investments, and interest-bearing funds were not utilized. The DRP restricted the disallowance to a certain amount. The Tribunal noted that the assessee made a suo-motu disallowance for tax-free income and referred to the balance sheet to show adequate own funds for investments. The Tribunal restored the issue to the AO to examine the availability of own funds for investment, allowing the appeal for statistical purposes.

Issue 2: Disallowance of interest on alleged share application money:
The assessee contested the disallowance of interest expenses on loan converted into share application money. The Tribunal referred to a Board Resolution converting the loan into equity share capital. Citing a relevant case, the Tribunal held that interest paid until the date of share allotment was allowable as revenue expenditure. Consequently, interest paid up to the date of share allotment was considered allowable as revenue expenditure, favoring the assessee.

Issue 3: Disallowance under section 14A while computing book profits under section 115JB:
The assessee challenged the inclusion of disallowance under section 14A r.w. Rule 8D when computing Book Profit under Section 115JB. The Tribunal referred to a Special Bench decision stating that section 14A r.w. Rule 8D should not be invoked while determining book profit under section 115JB. Consequently, the assessee succeeded on this ground.

In conclusion, the Tribunal partially allowed the appeal by the assessee, addressing the issues raised regarding disallowances under section 14A, interest on share application money, and the computation of book profits under section 115JB. The Tribunal provided detailed reasoning and legal references to support its decisions, ensuring a comprehensive analysis of the issues raised in the appeal.