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2022 (8) TMI 734 - AT - Income TaxDisallowance u/s 14A - assessee claimed interest expenditure from interest free own funds in the form of share capital and reserves as well as surplus - HELD THAT - Interest free funds were much higher than the investment in shares and partnership firms. There is no change in investment except increase investment to the extent of share of profit received from partnership firm. CIT(A) while restricting the disallowance under Section 14A of the Act directed the Assessing Officer to restrict the same on the basis of the Special Bench decision in case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI MAT Computation - The computation under Clause(f) Explanation-1 to Section 115JB(2) is to be made without restoring to the computation as contemplated under Section 14A read with Rule 8D of the Income Tax Rules, 1962. The CIT(A) also relied upon the decision of Jurisdictional High Court in case of PCIT vs. Alembic Limited 2017 (9) TMI 189 - GUJARAT HIGH COURT and, therefore, deleted the book profit and restricted the disallowance under Section 14A to the extent of Rs.9,06,254/-. The issue is covered and identical in the present case. The CIT(A) has rightly made the said observations and there is no need to interfere with the same. Hence, appeal of the Revenue is dismissed.
Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Interpretation of Rule 8D and CBDT Circular No. 5/2014. 3. Assessment Year 2016-17. Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961: The appeal involved the Revenue challenging the order of the CIT(A) regarding the disallowance of Rs.9,06,254 out of the total disallowance of Rs.1,65,83,699 made by the Assessing Officer under Section 14A read with Rule 8D of the Income Tax Rules. The CIT(A) restricted the disallowance based on the Special Bench decision in the case of ACIT vs. Vireet Investment Pvt. Ltd. The CIT(A) also referred to the decision of the Jurisdictional High Court in the case of PCIT vs. Alembic Limited to support the restriction of disallowance. The ITAT upheld the CIT(A)'s decision, stating that the issue was identical and rightly decided, leading to the dismissal of the Revenue's appeal. Issue 2: Interpretation of Rule 8D and CBDT Circular No. 5/2014: The Revenue argued that the CIT(A) erred in not considering CBDT Circular No. 5/2014, which specifies that Rule 8D with Section 14A allows for the disallowance of expenditure even if the taxpayer has not earned any exempt income in a particular year. However, the ITAT did not find merit in this argument and upheld the CIT(A)'s decision based on the specific facts and circumstances of the case, including the higher interest-free funds compared to investments. The ITAT noted that the CIT(A) correctly restricted the disallowance under Section 14A and dismissed the Revenue's appeal. Issue 3: Assessment Year 2016-17: The assessee, engaged in various businesses, filed an appeal against the assessment order for the Assessment Year 2016-17. The original return of income declared a total income of Rs (-) 8,43,06,035. The Assessing Officer made a disallowance under Section 14A amounting to Rs.1,65,83,699 read with Rule 8D. The CIT(A) partially allowed the appeal, leading to the subsequent appeals and cross-objection. The ITAT ultimately dismissed both the Revenue's appeal and the assessee's cross-objection in the given assessment year. This judgment by the Appellate Tribunal ITAT Ahmedabad addressed issues related to the disallowance under Section 14A of the Income Tax Act, the interpretation of Rule 8D and CBDT Circular No. 5/2014, and the assessment for the year 2016-17. The ITAT upheld the CIT(A)'s decision to restrict the disallowance based on relevant legal precedents and specific facts of the case, ultimately leading to the dismissal of both the Revenue's appeal and the assessee's cross-objection for the said assessment year.
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