2017 (11) TMI 1152 - AT - Income Tax

Disallowance u/s. 14A r.w. Rule 8D - sufficiency of own funds - Held that - Hon ble Jurisdictional High Court in the case of HDFC v. CIT (2016 (3) TMI 755 - BOMBAY HIGH COURT ) has held that if assessee possessed sufficient own funds, the presumption was that the investment was made from own funds and not from borrowed funds. Further we also observe that the assessee itself disallowed 10% of the dividend income at ₹.4,013/- and ₹.1,15,144/- for the Assessment Years 2008-09 and 2009-10 respectively at its own being the expenditure attributable for earning the exempt income and the Assessing Officer had not given any reason for rejecting the stand taken by the assessee. In the circumstances we hold that there is no need to make any further disallowance more than what the assessee already disallowed suomoto. In the circumstances, we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of the I.T. Rules for the Assessment Years 2008-09 and 2009-10. Investments in domestic companies inclusion for computing disallowance u/s.14A - whether dividend from domestic companies is not exempt from tax in view of section 115-O? - Held that - This issue is decided against the assessee by the Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd 2017 (5) TMI 403 - SUPREME COURT OF INDIA wherein held Section 14A of the Act would apply to dividend income on which tax is payable under Section 115-O of the Act and the question formulated in the appeal has to be answered against the appellant-assessee. Disallowance made u/s. 14A should be added while computing the total income as per the book profits u/s. 115JB - Held that - We admit the additional grounds and we find that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited (2017 (6) TMI 1124 - ITAT DELHI) held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Thus respectfully following the said decision, we restore the grounds raised by the assessee in respect of disallowance u/s. 14A while computing the book profits to the file of the Assessing Officer who shall decide in view of the decision of the Special Bench (supra). Ground No. 4 and the additional grounds are allowed for statistical purpose. Addition made u/s. 145A - previous year s closing stock has not been taken as forming part of current year s opening stock and made addition by the Assessing Officer - assessee before us submitted that the method of valuation of stocks as forming part of Tax Audit Report and referring to Point No. 5 submits that during the year the company has complied with the requirements of the Guidance Note issued by the Institute of Chartered Accountants of India ICAI with respect to the provisions of section 145A - Held that - On hearing both the parties and perusing the orders of the authorities below. we are of the considered view that this matter has to be restored to the file of the Assessing Officer for fresh adjudication and the contentions of the assessee are left open.

Summary

Issues:
1. Disallowance under section 14A r.w. Rule 8D of the Act.
2. Whether dividend from domestic companies is exempt from tax under section 115-O.
3. Treatment of disallowance u/s. 14A while computing total income as per book profits u/s. 115JB.
4. Addition made u/s. 145A regarding valuation of stocks.

Issue 1 - Disallowance under section 14A r.w. Rule 8D of the Act:
The appeals were filed against the orders of the Commissioner of Income Tax (Appeals) for the Assessment Years 2008-09 and 2009-10. The dispute revolved around the disallowance made by the Assessing Officer under section 14A r.w. Rule 8D of the Act concerning dividend income. The assessee contended that disallowance was already made suomoto, and no further disallowance should be imposed. The Tribunal observed that the assessee had sufficient own funds for investments, and no borrowings were utilized. Citing relevant case laws, the Tribunal held that no additional disallowance was warranted beyond what the assessee had already disallowed. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance made under section 14A r.w. Rule 8D for the relevant assessment years.

Issue 2 - Dividend from domestic companies and section 115-O:
The third ground of appeal questioned whether dividend from domestic companies should be exempt from tax under section 115-O, affecting the computation of disallowance u/s. 14A. The Tribunal noted that the Supreme Court had previously ruled against the assessee in a similar case. Therefore, this ground of appeal was dismissed based on the Supreme Court's decision.

Issue 3 - Treatment of disallowance u/s. 14A while computing total income as per book profits:
Regarding the fourth ground of appeal, the issue pertained to confirming the Assessing Officer's action of adding the disallowance under section 14A while computing total income as per book profits u/s. 115JB. The Tribunal allowed additional grounds raised by the assessee, citing a decision by the Delhi Special Bench, which stated that the computation under section 115JB(2) should be made without resorting to the computation under section 14A r.w. Rule 8D. Consequently, the Tribunal directed the matter back to the Assessing Officer for reconsideration in line with the Special Bench's decision.

Issue 4 - Addition made u/s. 145A regarding valuation of stocks:
For the Assessment Year 2009-10, an issue arose concerning the addition made under section 145A due to the valuation of stocks. The Tribunal acknowledged the contentions raised by the assessee regarding the valuation method and compliance with relevant guidance notes. As the Assessing Officer had not considered these aspects adequately, the Tribunal decided to send the matter back for fresh adjudication, allowing the assessee an opportunity to present its case.

In conclusion, the appeals of the assessee were partly allowed for statistical purposes, while the appeals of the Revenue were dismissed due to the insignificant revenue effect. The Tribunal's decision aimed to ensure fair treatment and proper application of tax laws in the respective cases.