2016 (6) TMI 102 - AT - Income Tax

Disallowance u/s 14A on interest expenditure - Held that - We find that the Commissioner of Income Tax (Appeals) has given a finding to the effect that during the year, no new investments in mutual funds and shares, were made by the assessee as the investments as on 31/03/2011 which stood at ₹ 6.78 crores was reduced to ₹ 6.75 crores as on 31/03/2012. He further gave a finding to the effect that the assessee had shown profits after tax in the financial years 2008-09, 2009-10 & 2010-11 at ₹ 4.74 crores, ₹ 5.36 crores and ₹ 3.77 crores respectively and therefore, it is the normal presumption that the investments were made by the assessee in mutual funds and shares, out of its own funds. The Department has brought no material before us to controvert the above findings of the Commissioner of Income Tax (Appeals) therefore, we find no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) which is confirmed and the ground of appeal of the Revenue against the deletion of disallowance of interest expenditure under sec. 14A is dismissed. Disallowance under the head administrative expenses under sec. 14A - Held that - Departmental Representative could not bring any material on record to show that the 0.5% of the administrative expenditure worked out under sub-part (iii) of sub-clause (2) of Rule 8D on the basis of average value of the investment income from which does not form part of the total income as appearing in the balance sheet as on the first day and in the last day of the previous year was more than ₹ 2 Lac. We find that the Assessing Officer while calculating the disallowance for administrative expenditure has taken the average value of total investments as appearing in the balance sheet as on the first day and in the last day of the previous year, hence, we find no infirmity in the order of the Commissioner of Income Tax (Appeals) which is confirmed and the ground of appeal of the Revenue is dismissed. Computation of book profit under sec. 115JB - Held that - In view of the specific provision in sec. 115JB of the Act which states the book profits shown in the profit & loss account is to be increased by the amount of expenditure relatable to any income to which secs. 10, 11 or 12 apply, the order of the Commissioner of Income Tax (Appeals) has to be reversed and the ground of appeal of the Revenue has to be allowed. Accordingly, we set aside the order of the Commissioner of Income Tax (Appeals) and allow this ground of appeal of the Revenue.

Summary

Issues:
1. Condonation of delay in filing the appeal by the Revenue.
2. Disallowance under sec. 14A of the Act - interest expenditure and administrative expenses.
3. Consideration of provisions of sec. 115JB of the Income Tax Act, 1961.

Issue 1: Condonation of Delay
The appeal filed by the Revenue was barred by a 6-day limitation. The Assessing Officer filed a condonation petition for the delay, citing a reasonable cause. The Tribunal, being satisfied with the reasons presented, condoned the delay and admitted the appeal.

Issue 2: Disallowance under sec. 14A of the Act
The Revenue's appeal contested the deletion of disallowance made by the Assessing Officer under sec. 14A of the Act. The Assessing Officer disallowed expenses amounting to &8377;50,44,213/- for earning exempted income of &8377;28,56,600/-. However, the Commissioner of Income Tax (Appeals) found that no new investments were made during the year and profits were generated from previous years, concluding that borrowed funds were not utilized for investments. The Tribunal upheld the Commissioner's decision, dismissing the appeal.

Issue 2 Cont'd: Administrative Expenses Disallowance
Regarding administrative expenses, the Commissioner observed an insufficient disallowance by the assessee. The Authorized Representative offered an additional &8377;2 Lac towards administrative expenses, which the Commissioner accepted, limiting the disallowance to that amount. The Tribunal found no grounds to interfere with this decision, dismissing the appeal against the disallowance of interest expenditure.

Issue 3: Consideration of sec. 115JB of the Income Tax Act
The Revenue contended that the Commissioner erred in not considering sec. 115JB, which requires the addition of expenditure related to certain incomes while computing book profits. The Commissioner had deleted the addition made by the Assessing Officer under sec. 14A to the book profit. The Tribunal reversed the Commissioner's decision, allowing the Revenue's appeal on this ground.

In conclusion, the Tribunal partly allowed the Revenue's appeal, condoning the delay in filing the appeal, upholding the Commissioner's decision on disallowance under sec. 14A, and reversing the decision on the consideration of sec. 115JB.