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2013 (11) TMI 962 - AT - Income TaxDisallowance u/s.14A Held that - Following CIT vs. Reliance Industries Ltd. 2009 (4) TMI 516 - Bombay High Court - The onus to establish that the indirect expenditure has no bearing on the income not forming part of the total income is squarely on the assessee, failing which Rule 8D will apply subject to the expenditure actually incurred and claimed would follow The issue was restored for fresh decision.
Issues Involved:
1. Delay in filing the appeal. 2. Disallowance under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Delay in Filing the Appeal: The appeal by the assessee was delayed by 79 days, filed on 29.08.2012 against the due date of 10.06.2012. The delay was attributed to an omission by the assessee's counsel, supported by an affidavit. Upon reviewing the reasons and hearing the parties, the tribunal found the delay suitably explained and admitted the appeal. 2. Disallowance under Section 14A: The core issue in the appeal was the disallowance under Section 14A, initially assessed at Rs. 39,94,365/- and later restricted by the Commissioner of Income Tax (Appeals) [CIT(A)] to Rs. 4,41,686/-. a. Basis of Disallowance: The Assessing Officer (A.O.) based the disallowance on Rule 8D, mandatory from the current year. The CIT(A) provided relief by considering the interest expenditure of Rs. 1,93,500/- and indirect expenditure relevant to dividend income at Rs. 2,48,186/-. The assessee argued that the disallowance should be limited to the actual expenditure incurred and claimed, citing the decisions in CIT vs. Reliance Industries Ltd. and Maxopp Investment Ltd. vs. CIT. The Revenue contended that the relief provided by CIT(A) was adequate. b. Tribunal's Observations: The tribunal acknowledged merit in both sides' arguments. It emphasized that disallowance under Section 14A should only be with reference to the actual expenditure incurred and not merely by following Rule 8D. The A.O.'s order, merged with the CIT(A)'s order, must be considered as further modified. The tribunal referred to its previous decision in AFL Private Limited, explaining that the A.O. must be satisfied with the assessee's claim regarding expenditure related to income not forming part of the total income. c. Factual Analysis: The tribunal found that the assessee failed to discharge the onus of substantiating its claim. A substantial part of the assessee's assets and income came from investments. The proportionate interest expenditure was significant, and the assessee did not provide a reasonable explanation for its stand. The CIT(A) confirmed the interest disallowance at Rs. 1,93,500/-, which the A.O. had calculated at Rs. 1,72,890/-. The CIT(A) also considered the total administrative expenditure as relevant to tax-exempt income, which was not strictly in line with Rule 8D. d. Requirement of Reasonable Estimation: The tribunal noted that the CIT(A) should have arrived at a reasonable estimation of the administrative expenditure attributable to income not forming part of the total income. The initial onus was on the assessee, but the Revenue must also adhere to the mandate of Section 14A(1). The tribunal referenced decisions in Reliance Industries Ltd. and Maxopp Investment Ltd., emphasizing the need for a reasonable allocation of common expenditure. e. Restoration of the Matter: The tribunal decided to restore the matter to the CIT(A) to allow the assessee an opportunity to present its case regarding the disallowance under Section 14A read with Rule 8D. The CIT(A) was directed to decide the matter in accordance with the law, considering the observations made by the tribunal. Conclusion: The assessee's appeal was allowed for statistical purposes, and the order was pronounced in the open court on October 31, 2013. The tribunal's detailed analysis highlighted the necessity of a fair and reasonable approach in disallowing expenditure under Section 14A, ensuring adherence to legal provisions and factual accuracy.
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