2018 (10) TMI 915 - AT - Income Tax

Addition u/s. 14 A r.w.r. 8D - Held that - The assessee has claimed exempt dividend income of ₹ 13038588/- and that was earned from non interest bearing funds and assessee has not made any expenditure in order to earn above said income. similar facts, ITAT decided matter in favour of assessee and a lump sum disallowance of ₹ 20,000/- was made. Therefore with consonance to the aforesaid ITAT order, we dismiss this ground of appeal of the department. Disallowance u/s 14A - Held that - So far ground with regard to directing AO not to consider the investment made in HDFC Fixed Mutual fund and HDFC cash management fund for the purpose of computation of disallowance out of interest paid as per sub clause 8D(2)(ii) but to consider these investments for making disallowances as per rule 8D(2)(iii) without appreciating fact that rule 8D(ii)(b) the average value of investment, income from which does not or shall not form part of total income as appearing in balance sheet of the assessee, on the first day and the last day of the previous year has to be taken for computing disallowance under sub clause (ii) of clause (2) of Rule 8D. So far ground related to directing for not considering the interest paid on term loan of ₹ 1,68,50,925/- for computation as per Rule 8D without appreciating the fact that as per Rule 8D(ii)A amount of expenditure by way of interest other than amount of interest included in clause (i) incurred during the previous year is to be taken for working out disallowance under sub clause (ii) of clause (2) of Rule 8D. There is no provision in Rule 8D to exclude part of the interest for working out the disallowance u/s 14A. Ld. A.O. has discussed the issue at page no. 2 to 4 and ld. CIT(A) has discussed the issue at page no. 2 to 13. Since in assessee s own case for assessment year 2008-09 and 2009-10, disallowance u/s. 14A restricted to ₹ 20,000/- on lump sum basis and ld. CIT(A) in impugned year follows appellate order for assessment year 2008-09 & 2009-10 and accordingly disallowance in quantum appeals are restricted to ₹ 20,000/- by the ITAT . Accordingly, this became infructuous.

Summary

Issues Involved:
1. Deletion of addition made under Section 14A read with Rule 8D.
2. Deletion of addition of interest on investment made in the subsidiary company under Section 40A(2)(b).
3. Deletion of addition made by invoking provisions of Section 40(a)(ia) regarding commission to dealers.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 14A Read with Rule 8D:
The Revenue contested the deletion of an addition of ?21,301/- made under Section 14A read with Rule 8D, arguing that the assessee could not substantiate its claim with corroborative evidence. The assessee claimed exempt dividend income of ?1,30,38,588/- and asserted that no expenditure was incurred to earn this tax-free income. The Assessing Officer (AO) disagreed, stating that the assessee used funds for investment and other income-earning activities, and thus made an addition of ?82,13,693/-. However, the CIT(A) and ITAT found that similar facts in previous years resulted in a lump sum disallowance of ?20,000/-. Therefore, the ITAT dismissed the Revenue's appeal, maintaining consistency with prior decisions.

2. Deletion of Addition of Interest on Investment Made in Subsidiary Company Under Section 40A(2)(b):
The Revenue challenged the deletion of an addition of ?1,04,67,285/- made by the AO for interest on investments in a subsidiary company, invoking Section 40A(2)(b). The AO argued that the investment was made to give undue advantage to the subsidiary company. The assessee countered that the investment was from internal accruals and not borrowed funds, and no specific loan was taken for this investment. The CIT(A) and ITAT upheld the assessee's position, referencing consistent favorable decisions for the assessee in previous assessment years (2008-09 and 2009-10). Thus, the ITAT dismissed this ground of the Revenue's appeal.

3. Deletion of Addition Made by Invoking Provisions of Section 40(a)(ia) Regarding Commission to Dealers:
The Revenue disputed the deletion of an addition of ?3,15,78,873/- made by the AO under Section 40(a)(ia), arguing that the assessee was paying commission to dealers, which should attract TDS provisions under Section 194H. The assessee contended that the payments were discounts and incentives to dealers, not commissions, and thus not subject to TDS. The CIT(A) and ITAT noted that similar issues in previous years (2008-09 and 2009-10) were decided in favor of the assessee. Consequently, the ITAT dismissed this ground of the Revenue's appeal.

Separate Judgments Delivered:
- ITA No. 77/Ahd/2014 for A.Y. 2010-11: The ITAT dismissed the Revenue's appeal.
- ITA No. 3317/Ahd/2014 for A.Y. 2010-11: The ITAT dismissed the Revenue's appeal as infructuous.
- ITA No. 3318/Ahd/2014 for A.Y. 2011-12: The ITAT dismissed the Revenue's appeal.
- ITA No. 3218/Ahd/2014 for A.Y. 2011-12: The ITAT allowed the Assessee's appeal.
- ITA No. 2993/Ahd/2013 for A.Y. 2010-11: The ITAT allowed the Assessee's appeal.

Conclusion:
The ITAT consistently dismissed the Revenue's appeals and allowed the Assessee's appeals, maintaining consistency with previous favorable decisions for the assessee on similar issues. The judgments emphasized the principles of consistency and the factual findings of previous assessment years.