2015 (8) TMI 1027 - AT - Income Tax

Disallowance under section 14A of the Act r/w Rule 8D - CIT(A) deleted the disallowance - Held that - CIT(A) has mentioned in his order that during the year under consideration, the assessee has not invested its borrowed funds in respect of the shares which are held as investment. The learned CIT(A) has relied upon the judgment of the Hon ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd(2009 (1) TMI 4 - HIGH COURT BOMBAY ) wherein it was held that if there were funds available, both interest free and over draft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated, or available with the bank. Relying on this judgment of the Hon ble Jurisdictional High Court, the learned CIT(A) has given a factual finding that the assessee had sufficient funds of its own to meet the investment and no borrowed funds were diverted for the purpose of making investment. This factual finding has not been rebutted before us by the learned Departmental Representative. Therefore, we are of the view that no interference is called for in the order of the learned CIT(A) in deleting the disallowance of interest made by the Assessing Officer in the assessment order. - Decided in favour of assessee Disallowance of proportionate expenses - Held that - It has been argued by the learned Counsel that the disallowance needs to be worked out again, for the reason that no disallowance under section 14A can be made on the strategic investments made in the subsidiaries. The second contention of the learned Counsel is that no disallowance under section 14A, can be made with respect to the shares held as stock in trade. It is seen that though these contentions were not raised by the assessee before the authorities below, undisputedly, in many cases, these contentions have been accepted by the various Benches of the Tribunal. Therefore, respectfully following the cases laws cited above, we set aside the order passed by the learned CIT(A) and restore the issue to the file of the A.O. for verification of the facts as narrated by the learned Counsel and to then accordingly adjudicate this issue afresh. Needless to say that the assessee should also be given adequate opportunity of hearing to put forth all the details and evidences as may be considered appropriate by the assessee in support of its contentions - Decided in favour of assessee for statistical purposes. Addition to the book profits under section 115JB with respect to the disallowance made by the Assessing Officer under section 14A - Held that - It is seen that this ground has not been adjudicated by the learned CIT(A) in the appeal order. Therefore, in all fairness and to meet the ends of justice, we set aside the impugned order passed by the learned Commissioner (Appeals) and remit this issue to the file of the learned CIT(A) for adjudication of this issue afresh after giving adequate opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the I.T. Rules.
2. Prior period income/expenses.
3. Levy of interest under section 234C of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A of the Act read with Rule 8D of the Rules:

The assessee company, a non-banking finance company, claimed Rs. 52,40,214 as dividend exempt under section 10(34) of the Income Tax Act, 1961. The assessee suo-motu treated Rs. 52,931 as expenditure for earning exempt income and disallowed the same in the computation of income. The Assessing Officer (AO) confronted the assessee regarding further disallowance under section 14A read with Rule 8D, resulting in a total disallowance of Rs. 8,39,53,575. The CIT(A) deleted the disallowance of Rs. 7,87,70,940 on account of interest but upheld the proportionate expenditure disallowance of Rs. 51,82,635. The Revenue contested the deletion of interest disallowance, while the assessee contested the upheld disallowance.

The Tribunal upheld the CIT(A)'s deletion of interest disallowance, citing the assessee's sufficient own funds and reliance on the case of Reliance Utilities and Power Ltd. The Tribunal dismissed the Revenue's appeal on this ground.

Regarding the proportionate expenditure disallowance, the Tribunal noted the assessee's arguments that disallowance should not apply to strategic investments in subsidiaries and shares held as stock-in-trade. The Tribunal cited various case laws supporting these contentions and remitted the issue back to the AO for verification and fresh adjudication, allowing the assessee's appeal for statistical purposes.

2. Prior Period Income/Expenses:

The assessee raised grounds related to prior period income/expenses, including the reversal of advisory fees wrongly booked twice and municipal taxes crystallized during the year. The Tribunal noted that the assessee did not wish to press these grounds, and the Departmental Representative did not object. Consequently, these grounds were dismissed as "not pressed."

3. Levy of Interest under section 234C:

The assessee contested the levy of interest under section 234C of the Act. Both parties acknowledged that this ground was consequential. The Tribunal directed the AO to give consequential effect while recomputing the income, in accordance with the Tribunal's findings and the provisions of law.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding the deletion of interest disallowance under section 14A and remitted the issue of proportionate expenditure disallowance back to the AO for fresh adjudication. The grounds related to prior period income/expenses were dismissed as not pressed, and the issue of interest under section 234C was directed for consequential adjustment. The Revenue's appeal was treated as partly allowed for statistical purposes.