2018 (6) TMI 958 - AT - Income Tax

Disallowance u/s. 14A read with Rule 8D - Held that - The impugned order of the Ld. CIT(A) in deleting the addition as made by the AO under Rule 8D(2)(ii) of the Rules. Coming to Rule 8D(2)(iii) of the Rules we note that assessee had earned exempt income to the tune of 1.53 cr. However the Ld. CIT(A) erred in relying on decision in Holcim India Pvt. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT wherein it was held that when there is no exempt income no disallowance u/s. 14A of the Act is called for. Therefore we set aside the order of Ld. CIT(A) on this issue and direct disallowance @ .5% on the dividend earning scrip as held by Coordinate bench in the case of REI Agro Ltd. Vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA . Addition of notional interest on sticky loan - Held that - We note the issue is squarely covered in favour of the assessee by the decision in assessee s own case as held addition of notional interest on sticky loans was not warranted by disregarding that the assessee followed mercantile system of accounting and as per accounting standard interest accrued should have been recognized on accrual basis Addition on account of depreciation on plant and machinery and other business assets purchased out of amount withdrawn from the credit available with NABARD - Held that - We note the issue is squarely covered in favour of the assessee by the decision of Hon ble jurisdictional High Court in assessee s own case wherein d Tribunal very rightly confirmed the deletion of disallowance of the claim of the assessee to depreciation. Addition to the book profit computed u/s. 115JB of the Act on account of disallowance u/s. 14A - Held that - It is reiterated that the disallowances made under the provisions of Sec. 14A r.w.s 8D of the IT Rules cannot be applied to the provision of Sec. 115JB of the Act. Therefore the AO shall work out disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit & loss account as mandated under the provisions of law. Accordingly this issue of revenue s appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D.
2. Addition of notional interest on sticky loans.
3. Disallowance of depreciation on assets purchased from NABARD withdrawals.
4. Computation of book profit under Section 115JB of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D:
The Revenue appealed against the deletion of disallowance under Section 14A read with Rule 8D by the CIT(A). The AO had disallowed ?3,91,07,732/- as interest expenses and ?51,23,700/- as other expenses, totaling ?4,42,31,432/-. The CIT(A) deleted the disallowance following the ITAT's decision in the assessee's own case for AY 2008-09 and the Delhi High Court's decision in CIT Vs. Holcim India Pvt. Ltd. The ITAT noted that the issue was covered in favor of the assessee by earlier decisions, confirming that the assessee had sufficient own funds to make the investments, thus no disallowance under Rule 8D(2)(ii) was warranted. However, regarding Rule 8D(2)(iii), the ITAT directed a disallowance at 0.5% on the dividend-earning scrip, partially allowing the Revenue's appeal.

2. Addition of notional interest on sticky loans:
The AO added ?75,00,000/- as notional interest on a sticky loan of ?5,00,00,000/-, arguing that the assessee followed the mercantile system of accounting. The CIT(A) deleted the addition, citing the ITAT's decision in the assessee's own case. The ITAT upheld this deletion, referencing the jurisdictional High Court's decision that had accepted the non-recognition of interest on sticky loans in similar circumstances.

3. Disallowance of depreciation on assets purchased from NABARD withdrawals:
The AO disallowed 40% of the depreciation claimed on assets purchased from NABARD withdrawals, following the practice from earlier years. The CIT(A) deleted the disallowance based on the ITAT's previous decision in the assessee's favor. The ITAT upheld this deletion, referring to the jurisdictional High Court's decision that confirmed the allowance of depreciation on such assets.

4. Computation of book profit under Section 115JB of the Income-tax Act:
The AO added ?4,43,94,734/- to the book profit under Section 115JB on account of disallowance under Section 14A. The CIT(A) deleted this addition, following the ITAT's earlier decision. The ITAT noted that the disallowance under Section 14A cannot be equated with disallowance under Section 115JB, as the latter is a self-contained code. The ITAT referenced the jurisdictional High Court's decision, which mandated independent computation under clause (f) to Explanation-1 of Section 115JB. The ITAT restored the matter to the AO for recalculating the book profit, allowing the Revenue's appeal for statistical purposes.

Conclusion:
The ITAT's decision resulted in a partial allowance of the Revenue's appeal regarding Rule 8D(2)(iii) disallowance and the computation of book profit under Section 115JB. The appeals concerning notional interest on sticky loans and depreciation on assets purchased from NABARD withdrawals were dismissed, favoring the assessee. The judgment underscored the importance of adhering to established precedents and the specific provisions of tax laws.