2016 (1) TMI 540 - AT - Income Tax

Disallowance under section 14A r.w.r. 8D - Held that - There has been no disallowance under section 14A which essentially proceeds on the accepted position that there has been no use of borrowed funds in this case. So far as fresh investments made in the present year are concerned, it is not in dispute that the sale proceeds of the mutual fund investments during the year has been used in making the investments. The disallowance even under rule 8D must therefore remain restricted to the amount worked out under rule 8D(2)(iii), 0.5% of the average value of investments appearing in the balance sheet as on 31.3.2007 and 31.3.2008, which works out to ₹ 26,951 as no part of the interest can be disallowed by invoking section 14A. We, therefore, restrict the disallowance to ₹ 26,951 and delete the remaining disallowance. Disallowance in respect of motor car expenses and depreciation - Held that - This issue is now covered, in the case of assessee s group Aflon Alplast Pvt Ltd for the same assessment year and in respect of similarly worded orders of the authorities below, in favour of the assessee Disallowance under section 40A(2)(b) - interest payment to the specified persons @ 24% pa, is excessive and unreasonable - Held that - This issue is now covered, in the case of assessee s group Aflon Alplast Pvt Ltd for the same assessment year and in respect of similarly worded orders of the authorities below, in favour of the assessee

Summary

Issues:
1. Disallowance under section 14A r.w.r. 8D
2. Disallowance of motor car expenses and depreciation
3. Disallowance under section 40A(2)(b)

Analysis:

Issue 1: Disallowance under section 14A r.w.r. 8D
The judgment addresses the disallowance under section 14A r.w.r. 8D, where the Assessing Officer computed a disallowance of &8377; 6,85,687 based on rule 8D. However, the tribunal restricted the disallowance to &8377; 26,951, citing the absence of the use of borrowed funds and the utilization of sale proceeds for fresh investments. Referring to a High Court judgment, the tribunal concluded that only 0.5% of the average value of investments should be disallowed, resulting in relief for the assessee.

Issue 2: Disallowance of motor car expenses and depreciation
The judgment also deliberates on the disallowance of motor car expenses and depreciation. The tribunal noted that a similar issue was resolved in favor of the assessee's group in a previous case. Despite the Departmental Representative's stance, the tribunal upheld the assessee's grievance and deleted the disallowances amounting to &8377; 2,35,830 for motor car expenses and &8377; 2,21,304 for depreciation on the motor car.

Issue 3: Disallowance under section 40A(2)(b)
Regarding the disallowance under section 40A(2)(b), the tribunal found the issue to be covered by a previous case involving the assessee's group. Following the precedent, the tribunal deleted the disallowance of &8377; 12,77,058, concurring with the assessee's contention. The judgment thus allowed the assessee's appeal partly, dismissing the revenue's appeal and the assessee's cross objection.

In conclusion, the judgment provides detailed reasoning for each issue, considering legal provisions, factual findings, and precedents to deliver a comprehensive analysis and grant relief to the assessee on various grounds.