2015 (10) TMI 306 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D(ii) and 8D(iii) - Held that - None of the judgments cited by the Learned A.R. of the assessee is rendering any help to the assessee. Moreover, the only explanation of the assessee regarding source of fund used for making investment was that the same is out of interest free advances received from customers but we have seen that the advances received from customers as on 31/03/2008 were not sufficient to cover the entire investment in shares of ₹ 694.84 lacs because the advance from customers as on 31/03/2008 was ₹ 122.04 lacs only. We have also seen that even if these advances were received by the assessee from the customers, the assessee must have incurred bank charges for providing bank guarantee to the customers. Hence, under these facts, the disallowance made by the Assessing Officer as per Rule 8D is very much in order and therefore, we do not find any reason to interfere in the order of CIT(A) on this issue. - Decided against assessee.

Summary

Issues:
Disallowance of expenses under section 14A of the Income Tax Act, 1961 for assessment year 2008-2009.

Analysis:
The assessee appealed against the order of the CIT(A)-I, Kanpur, challenging the disallowance of expenses amounting to Rs. 4,82,690 under section 14A of the Income Tax Act, 1961 read with Rule 8D(ii) and 8D(iii) of Income Tax Rules, 1962. The assessee contended that there was no direct or indirect nexus between the investment in shares/units of Mutual Funds and the interest-bearing funds. The assessee argued that buying units of Mutual Funds was incidental to carrying on the business and should be treated as a business asset with expenses admissible under sections 36/37 of the Income Tax Act, 1961.

The Assessing Officer had asked for details of interest and other expenses incurred by the assessee in relation to the dividend income. The assessee's response highlighted that the funds invested in Mutual Funds were advance receipts from customers, not interest-bearing, and were used for providing liquid security to the bank for issuing letters of credit. However, the assessee failed to provide specific details regarding the expenditure incurred for earning dividend income. The ITAT noted that bank charges paid for issuing guarantees to customers for obtaining advances were expenses related to earning exempted dividend income.

The ITAT analyzed various judicial pronouncements cited by the assessee, including judgments from the Punjab & Haryana High Court and Tribunal decisions. It was observed that the judgments cited were not applicable to the present case as the assessee had indeed incurred expenses for earning dividend income. The ITAT emphasized that the disallowance made by the Assessing Officer under Rule 8D was justified due to the lack of detailed information provided by the assessee regarding the expenditure incurred.

Ultimately, the ITAT dismissed the appeal, upholding the order of the CIT(A) regarding the disallowance of expenses under section 14A of the Income Tax Act, 1961. The decision was based on the finding that the assessee had not sufficiently demonstrated the absence of expenses incurred for earning dividend income, and the disallowance under Rule 8D was deemed appropriate given the circumstances.

In conclusion, the ITAT affirmed the disallowance of expenses under section 14A of the Income Tax Act, 1961 for the assessment year 2008-2009, based on the lack of detailed expenditure information provided by the assessee and the incurred bank charges related to earning dividend income.