2019 (12) TMI 676 - AT - Income Tax

Disallowance u/s 14A - HELD THAT - No disallowance of interest expense claimed by the assessee can be made on account of investments as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance on account of interest expenses under the provisions of section 14A read with rule 8D - HELD THAT - Regarding the interest expenses, we note that in the identical facts and circumstances the impugned issue has been decided in favour of the assessee in his own case vide paragraph number 7 to 7.3 of this order. For the detailed discussion please refer to the relevant paragraph. Respectfully following the same we hold that there cannot be any disallowance on account of interest expenses. Regarding the disallowance of administrative expenses, we note that the AO has invoked the provisions of section 14A read with rule 8D mechanically without referring to the books of accounts of the assessee. As such the assessee has not claimed any expenditure against such exempted income. Therefore in our view there cannot be any disallowance of the expenses on account of exempted income. See RAKESH K. PATEL (HUF) VERSUS DCIT, CIRCLE-1 (2) , BARODA 2019 (7) TMI 1545 - ITAT AHMEDABAD We hold that there cannot be any disallowance on account of interest and administrative expenses under the provisions of section 14A read with rule 8D - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance under section 14A of the Income Tax Act for Assessment Years 2012-13 and 2013-14.

Analysis:

Issue 1: Disallowance under section 14A for AY 2012-13
The appellant challenged the disallowance of ?3,07,303 under section 14A for AY 2012-13. The Assessing Officer (AO) disallowed a proportionate amount of interest expenses incurred in relation to exempted income. The appellant contended that the own fund exceeded the investments, indicating no need for disallowance. The Tribunal referred to precedents where if interest-free funds were sufficient to meet investments, no disallowance was warranted. Relying on these principles, the Tribunal held in favor of the appellant, directing the AO to delete the addition made. The ground of appeal was allowed.

Issue 2: Disallowance under section 14A for AY 2013-14
The appellant contested the disallowance of ?84,499 under section 14A for AY 2013-14. The AO disallowed interest and administrative expenses under section 14A read with rule 8D. The Tribunal, in line with its decision for AY 2012-13, held that no disallowance on interest expenses was justified. Additionally, it noted that the AO mechanically invoked rule 8D without considering the assessee's accounts. Citing a relevant tribunal order, the Tribunal concluded that no administrative expenses disallowance was warranted. Consequently, the Tribunal directed the AO to delete the addition made. The ground of appeal was allowed.

In conclusion, both appeals of the assessee were allowed, with the Tribunal setting aside the disallowances made by the authorities for both AYs 2012-13 and 2013-14. The judgments were pronounced on 6/12/2019 by the Appellate Tribunal ITAT Ahmedabad, with detailed reasoning provided for each issue raised by the appellant.