2018 (5) TMI 40 - AT - Income Tax

Disallowance u/s. 14A r.w. Rule 8D - inclusion of dividend yielding investments - Held that - In view of the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited (2017 (6) TMI 1124 - ITAT DELHI), we direct the Assessing Officer to recompute the disallowance under Rule 8D2(iii) keeping in view the decision of the Special Bench wherein it has been held that only dividend yielding investments shall be considered for the purpose of computing the disallowance under Rule 8D2(iii). This ground is partly allowed. Interest income received by the assessee - assessed as business income or income from other sources -Held that - Having money lending licence is not a precondition for having business income from money lending activity. Merely because there is no money lending licence, interest income cannot be treated as income from other sources. Nothing much would turn on that fact in deciding this issue. Following the principle of consistency, 1 hold that interest received by the appellant on loans and advances given to various persons is business income. The fact that there was no mention of money lending activity as business in Form 3CD also cannot be a ground to hold otherwise when interest income was assessed as business income in the past.

Summary

Issues:
1. Disallowance under Rule 8D of the Income Tax Rules for Assessment Year 2011-12.
2. Assessment of interest income received by the assessee as business income or income from other sources.

Issue 1: Disallowance under Rule 8D for Assessment Year 2011-12:
The Assessing Officer disallowed &8377;38,04,497 under Rule 8D2(iii) r.w.s. 14A of the Act. The Ld.CIT(A) deleted the interest disallowance under Rule 8D2(ii) but sustained the disallowance under Rule 8D2(iii). The assessee argued that only dividend yielding investments should be considered for computing the disallowance under Rule 8D2(iii), citing the decision of a Special Bench. The ITAT directed the Assessing Officer to recompute the disallowance under Rule 8D2(iii) considering only dividend yielding investments, as per the Special Bench decision. This ground was partly allowed.

Issue 2: Assessment of interest income received by the assessee:
The dispute revolved around whether the interest income received by the assessee should be assessed as business income or income from other sources. The Assessing Officer treated the interest received as income from other sources, while the assessee claimed it to be income from business. The Ld.CIT(A) held that the interest received should be assessed under the head income from business, citing consistency in assessments for previous years and a relevant High Court decision. The ITAT upheld the decision of the Ld.CIT(A), emphasizing the principle of consistency and the absence of a money lending license as not precluding business income from money lending activities. The interest income of &8377;25,26,58,443 received by the appellant was deemed as business income, and the grounds raised by the Revenue were dismissed.

Conclusion:
The ITAT partly allowed the appeals of the assessee for both Assessment Years 2011-12 and 2012-13, while dismissing the appeal of the Revenue. The judgment emphasized the importance of considering only dividend yielding investments for disallowance under Rule 8D2(iii) and upheld the assessment of interest income received by the assessee as business income based on consistency in assessments and legal principles.