2017 (12) TMI 1002 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - sufficiency of own funds - Held that - The assessee has made investment out of its own funds which are sufficient to cover the value of investment, in that case, no disallowance of interest is required to be made under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. When this was confronted to the learned Sr. Departmental Representative, he fairly conceded the position. As the issue is squarely covered in favour of the assessee, respectfully following the Hon ble Bombay High Court in the case of HDFC Bank (2014 (8) TMI 119 - BOMBAY HIGH COURT ), we allow this issue of assessee s appeal. Disallowance of administrative expense under Rule 8D(2)(iii) - Held that - When a query was put to the learned Counsel that once the assessee itself has disallowed the sum of ₹ 37,38,476/-, Ld Counsel narrated that there is no estoppel against law and the income wrongly declared under wrong notion or under mistaken notion can be deleted. Thus we restrict the disallowance at ₹ 3,32,645/- being administrative expense under Rule 8D(2)(iii) of the Income Tax Rules. See case of Tata Industries Ltd. 2016 (7) TMI 1011 - ITAT MUMBAI

Summary

Issues:
Disallowance of expenses relatable to exempt income under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.

Analysis:
The appeal pertains to the disallowance of expenses related to exempt income by invoking section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The assessee, engaged in investment and finance business, had suo moto disallowed a sum under section 14A, but the Assessing Officer calculated a higher disallowance under Rule 8D. The CIT(A) restricted the disallowance by considering net interest expenses. The Tribunal considered the argument that no disallowance should be made on interest expenses since the assessee's own funds were sufficient to cover investments, citing precedents. The Tribunal agreed with this argument, following the Bombay High Court's decisions in similar cases, and allowed the appeal on this issue.

Regarding administrative expenses, the Tribunal noted the assessee's contention that once interest disallowance was deleted, administrative expenses remained minimal. The assessee argued that the disallowance already made should be reversed since there were no significant other expenses. Citing relevant case laws, the Tribunal agreed with the assessee's argument and restricted the disallowance to a lower amount for administrative expenses under Rule 8D(2)(iii) of the Income Tax Rules. The Tribunal directed the Assessing Officer to adjust the disallowance accordingly. As a result, the appeal of the assessee was partly allowed, with the Tribunal pronouncing the order on 13-12-2017.