2018 (5) TMI 505 - AT - Income Tax

Disallowance u/s 14A - proportionate interest expenditure u/s 8D(2)(ii) of the Income Tax Rules - Held that - It has come on record that the ld. Coordinate Bench in assessee s own case has held that such a disallowance is to be made on netting formula. The assessee has already disallowed entire net interest expenditure of ₹ 13,59,442/- on the very lines. The said co-ordinate bench further concludes regarding administrative expenditure that the same would be exigible to disallowance if only claimed as deduction and not otherwise. Learned DR is unable to refer to any material indicating such expenditure actually claimed as incurred. We therefore adopt judicial consistency in the impugned assessment year as well to confirm the CIT(A) s findings under challenge. - Decided in favour of assessee

Summary

Issues:
- Disallowance of proportionate interest and administrative expenditure under section 14A r.w.r.8D of the Income Tax Rules, 1962.

Analysis:

Issue 1: Disallowance of Proportionate Interest
The Revenue's appeal contested the order of the C.I.T.(A) reversing the AO's action of disallowing proportionate interest and administrative expenditure under section 14A r.w.r.8D of the Income Tax Rules. The appellant argued that the AO's disallowance was excessive and arbitrary, as the appellant had already disallowed the entire net interest expenditure. The Tribunal referred to previous judgments and held that only net interest should be considered for disallowance under Rule 8D(2)(ii). Consequently, the disallowance of interest made by the AO was deemed unjustified and deleted.

Issue 2: Disallowance of Administrative Expenditure
Regarding administrative expenditure, the Tribunal noted that such disallowance would be applicable only if claimed as a deduction and not otherwise. The Revenue failed to provide evidence of such expenditure being claimed as incurred. Therefore, the Tribunal upheld the CIT(A)'s findings and dismissed the Revenue's appeal, concluding that the disallowance of administrative expenditure was not justified.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to reverse the disallowance of proportionate interest and administrative expenditure under section 14A r.w.r.8D of the Income Tax Rules, 1962. The Tribunal emphasized the importance of considering only net interest for disallowance and requiring administrative expenditure to be claimed as a deduction to be eligible for disallowance.