2019 (11) TMI 1194 - HC - Income Tax

Disallowance u/s. 14A r/w. Rule 8D(2)(ii) - Tribunal found that only an amount of ₹ 23 lakhs of interest paid is attributable to earning exempt income - HELD THAT - The Revenue is not able to point out, why the impugned order of the Tribunal should be interfered with by this Court. More particularly in view of the fact that this Court s in M/s. Nirved Traders Pvt. Ltd. v/s. Deputy Commissioner of Income Tax 2019 (4) TMI 1738 - BOMBAY HIGH COURT has held that disallowance under Section 14A of the Act cannot be more than exempt income. Tri bunal restricting the disallowance u/s 14A r/w. Rule 8D(2)(iii) by reducing the value of strategic investment and investment not yielding dividend income - HELD THAT - Appeal is admitted on the substantial question of law as (B) above. Prima-facie, this issue seems to be concluded against the Respondent assessee and in favour of the Revenue by the decision of the Apex Court in Maxopp Investment Ltd. v/s. Commissioner of Income tax, New Delhi 2018 (3) TMI 805 - SUPREME COURT . Therefore, we fix the final hearing of this Appeal on 3 February 2020 at the bottom of the Admission Board. Registry is directed to communicate copy of this order to the Tribunal.

Summary

Issues Involved:
Appeal challenging order of Income Tax Appellate Tribunal for Assessment Year 2008-09. Questions of law: (A) Disallowance under Section 14A r/w. Rule 8D(2)(ii) restricted by Tribunal, (B) Disallowance under Section 14A r/w. Rule 8D(2)(iii) restricted by Tribunal.

Analysis:

Issue A: Disallowance under Section 14A r/w. Rule 8D(2)(ii):
The Assessing Officer noted exempt dividend income of ?9.70 lakhs and disallowed interest expenses of ?21.95 crores under Section 14A r/w. Rule 8D(2)(ii). The CIT(A) upheld a disallowance of ?26.64 lakhs, attributing interest to earning exempt income. The Tribunal affirmed this decision, finding the disallowance reasonable. The Revenue's appeal was dismissed as it failed to justify why the CIT(A)'s decision was improper. The Court cited a previous judgment to support the restriction of disallowance under Section 14A not exceeding exempt income, concluding no substantial question of law arose.

Issue B: Disallowance under Section 14A r/w. Rule 8D(2)(iii):
The Tribunal restricted disallowance to ?14.79 lakhs by reducing the value of strategic investments and non-dividend yielding investments. The Revenue contested this decision citing a Karnataka High Court case, arguing for broader application of Section 14A. The Court noted a Supreme Court decision favoring Revenue's position, scheduling a final hearing on the matter. The Respondent's position appeared unfavorable based on the Supreme Court ruling, indicating a potential reversal of the Tribunal's decision.

This comprehensive analysis outlines the key legal issues, the arguments presented, and the decisions made by the Tribunal and potential outcomes based on relevant legal precedents.