2017 (11) TMI 918 - HC - Income Tax

Disallowance u/s 14A - Held that - ITAT noticed the decision of this Court in Maxopp Investment Ltd. v. Commissioner of Income Tax, (2011 (11) TMI 267 - Delhi High Court) that Rule 8D of the Income Tax Rules does not have retrospective operation. In this case, the lower authority had ruled that the provision did have retrospective operation. No question of law, therefore, arises since the ITAT merely followed the ruling of this Court in Maxopp (supra). Treatment of interest for the sum which the assessee claimed as cost of acquisition under Section 55 - Held that - The assessee sold off its shares to an entity in a bid to disinvest itself of the loss making entity. The two individuals to whom the sum of ₹ 12,25,000/- had paid had assisted the assessee in the disinvestment move. The AO - later the CIT (A) - disallowed these amounts holding that the nature of services rendered by such individuals was not clear and the rationale in the expenditure too was not supported by any documentary evidence. Given that the disinvestment itself is not doubted as is evident from the matters reported by the assessee which are part of the record, the expenses claimed are neither disproportionate nor of the kind that facially require proof as was sought by the authorities below. Consequently, no question of law arises. As far as the capitalization of the interest in the hands of the assessee in the sum of ₹ 2,34,05,003/- is concerned, we notice that the CIT (A) had reversed the AO s order after noting the decision of this Court in CIT v. Mithlesh Kumari (1973 (2) TMI 11 - DELHI High Court) and a later decision of the Madras High Court - CIT v. Trishul Investments Ltd. 2007 (7) TMI 252 - MADRAS HIGH COURT . In those decisions, it was held that the interest paid subsequent to the date of the transfer in respect of the money borrowed earlier to purchase the capital asset is also part of the cost of capital asset. The CIT (A) also took note of the reasoning of the Supreme Court in Challapalli Sugar Ltd. v. CIT, (1974 (10) TMI 3 - SUPREME Court).

Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961
2. Expenses incurred on payments to individuals
3. Addition made by the Assessing Officer regarding interest treatment under Section 55 of the Income Tax Act, 1961

Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961
The Revenue raised the first issue regarding the disallowance of &8377; 47,11,206 under Section 14A. The ITAT referred to the decision in Maxopp Investment Ltd. v. Commissioner of Income Tax, stating that Rule 8D does not have retrospective operation. The lower authority had held otherwise, but since the ITAT followed the ruling of the court in Maxopp, no question of law arises concerning this issue.

Issue 2: Expenses incurred on payments to individuals
The second issue involved &8377; 12,25,000 incurred on payments to two individuals who assisted in the disinvestment move. The Court found this issue to be factual. The AO and CIT (A) disallowed these amounts, questioning the nature of services rendered and lack of supporting rationale and evidence. However, as the disinvestment itself was not doubted, and the claimed expenses were not disproportionate and did not require additional proof, the Court concluded that no question of law arises in this regard.

Issue 3: Addition made by the Assessing Officer regarding interest treatment under Section 55
Regarding the addition of &8377; 2,34,05,003 as cost of acquisition under Section 55, the CIT (A) reversed the AO's decision based on legal precedents. The CIT (A) considered decisions from the Delhi High Court and the Madras High Court, along with the Supreme Court's reasoning in Challapalli Sugar Ltd. v. CIT. The ITAT upheld the CIT (A)'s decision, and the Court found no question of law arising from this issue.

In conclusion, the High Court dismissed the appeal as no substantial question of law was involved in any of the issues raised by the Revenue. The Court affirmed the decisions made by the lower authorities and rejected the appeal along with any pending applications.

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