2022 (3) TMI 1197 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - assessee contended that since there is no new investment in shares made by the assessee company during the year under assessment disallowance interest in respect of expenses as per Rule 8D(ii) is not sustainable - HELD THAT - As perused the order passed by the CIT(A) who has thrashed the facts in detail and when there is no fresh investment by the assessee company in shares during the year under assessment Rule 8D(ii) is not attracted. So the assessee company has rightly made suo-moto disallowance @ 0.5% of the average investment. So we find no scope to interfere into the findings returned by Ld. CIT(A), hence ground No.1 raised by the Revenue is hereby dismissed. Adjustment of LTCL against the LTCG of the property sold during the year - AO has disallowed on the ground that when the income includes loss, the loss is arising out of sale of shares/mutual funds which are subjected to STT also are not part of the total income and as such assessee is not entitled for adjustment of LTCL against its LTCG - HELD THAT - When the assessee company has merely sought direction from the Ld. CIT(A) for allowing of carry forward of speculation loss on the commodity exchange during the year and claimed carry forward in the subsequent years profit, the Ld. CIT(A) has directed the AO to verify the amount of speculation loss in accordance with the law, if any speculation loss is there the same may be set off against any speculation income in the future. Since the AO has been given the liberty to proceed as per law only to set off speculation loss that too in accordance with the law against any speculation income of the assessee in future, no ground is made out to interfere into the findings returned by the Ld. CIT(A), hence ground is also determined against the Revenue.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D for exempt dividend income.
2. Set-off of Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG).

Issue 1: Disallowance under section 14A read with Rule 8D for exempt dividend income:

The Assessing Officer (AO) made a disallowance under section 14A of the Income Tax Act, 1961 for exempt dividend income claimed by the assessee. The AO disagreed with the working made by the assessee and invoked provisions under section 14A read with Rule 8D to make a disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal filed by the assessee, citing a similar decision by the ITAT Mumbai for a previous assessment year. The ITAT Mumbai held that the AO did not record the satisfaction required for invoking section 14A read with Rule 8D. Additionally, since the assessee's own funds exceeded the investments generating exempt income, and the netting of interest income and expenses was positive, no disallowance was warranted. The ITAT Mumbai directed the AO to delete the disallowance, which was upheld in the present case. The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision.

Issue 2: Set-off of Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG):

The assessee claimed adjustment of LTCL against LTCG, which the AO disallowed on the grounds that the income included loss from the sale of shares subject to Securities Transaction Tax (STT). The CIT(A) addressed this issue for statistical purposes, directing the AO to verify the speculation loss on the commodity exchange and allow it to be set off against any speculation income in the future. The ITAT upheld the CIT(A)'s decision, stating that the AO should proceed as per law to set off speculation loss against speculation income in the future. As the CIT(A) provided clear directions for the treatment of speculation loss, the ITAT found no reason to interfere with the decision. Therefore, the appeal filed by the Revenue was dismissed.

In conclusion, the ITAT Mumbai upheld the CIT(A)'s decision to delete the disallowance under section 14A read with Rule 8D and to address the set-off of LTCL against LTCG for statistical purposes. The ITAT dismissed the Revenue's appeal, emphasizing compliance with legal requirements and proper treatment of losses and gains in accordance with the law.