2020 (3) TMI 1023 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee was having sufficient own interest free funds available, which exceeded tax free investments - HELD THAT - CIT (A) as well as the Tribunal to the effect that no disallowance towards the proportionate interest expenditure can be made under Rule 8D(2)(ii) as there was sufficient fund available with the assessee as its own fund, i.e, ₹ 30.35 Crore in excess of corresponding investment of ₹ 12.54 Crore giving rise to the exempt income, no addition can be made by applying Rule 8D(2)(ii) of the Income Tax Rules, 1962. To reach at the aforesaid finding, the Tribunal has relied upon the decision of this Court in the case of Pr. CIT vs. Sintex Industries Ltd., ( 2017 (5) TMI 1160 - GUJARAT HIGH COURT ) and the decision of the Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT In view of the concurrent finding of fact arrived at by the CIT (A) as well as the Tribunal, the question of law, as proposed by the Revenue, cannot be termed as the substantial question of law arising out of the impugned order of the Tribunal.

Summary

Issues:
1. Disallowance of interest expenses under Section 14A of the Income Tax Act, 1961.
2. Recomputation of administrative and other general expenses under Section 14A.

Analysis:
1. The appeals were filed by the Revenue against the common order passed by the Income Tax Appellate Tribunal regarding the disallowance of interest expenses under Section 14A of the Income Tax Act, 1961. The Revenue questioned whether the ITAT erred in deleting the disallowance of interest expenses based on the availability of own interest-free funds exceeding tax-free investments without concrete evidence. The CIT (A) restricted the disallowance related to interest expenses to &8377; 6.06,477/-, considering the appellant's arguments and financial details provided. The Tribunal upheld the CIT (A)'s decision, citing previous judgments and the sufficiency of the appellant's own funds compared to investments giving rise to exempt income.

2. Regarding the recomputation of administrative and other general expenses under Section 14A, the Assessing Officer initially made disallowances amounting to &8377; 1,27,92,81,434/-. The CIT (A) restricted the disallowance and considered various factors such as interest-free funds, borrowed funds, and investments yielding exempt income. The Tribunal, after reviewing the evidence, directed the AO to delete the disallowance made under Rule 8D(2)(ii) of the IT Rules due to the appellant's sufficient own funds available. The Tribunal also remitted the matter back to the AO for recomputing the disallowance based on investments giving rise to tax-free income, rather than gross investments. The judgments of previous cases were cited to support the decisions made by the Tribunal.

3. In conclusion, both appeals by the Revenue were dismissed based on the findings of fact by the CIT (A) and the Tribunal. The substantial questions of law proposed by the Revenue were not considered substantial in light of the concurrent findings. The decisions were supported by legal precedents and detailed financial analysis provided by the appellant.