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2020 (9) TMI 455 - AT - Income TaxAddition u/s 14A - suo moto disallowance u/s 14A in respect of earning dividend income - HELD THAT - CIT(A) has given a finding that the AO has correctly applied Clause 3 of Sub-Rule 2 of Rule 8D to compute the disallowance of expenses but from the perusal of record it can be seen that the assessee has made suo moto disallowance u/s 14A in respect of earning dividend income. The assessee has given a working before the AO on account of interest expenses and on account of administrative expenses on estimate basis. The same has not been properly adjudicated by the AO as well by the CIT(A). The assessee has given in its reply dated 23/12/2009, the details as to why the disallowance u/s 14A shall not be computed under Rule 8D. AO has computed the disallowance as per Rule 8D of the Income Tax Rules which is not applicable for the year under consideration as the present AY is 2007-08. It is pertinent to note that the AO has also not given the satisfaction as to how the working given by the assessee is not plausible. The assessee has made disallowance at 10% which was in support for the earlier AY 2006-07 which was confirmed by the Tribunal in assessee s own case 2019 (4) TMI 1900 - ITAT DELHI . Therefore, the suo motu disallowance at 10% is reasonable and cannot be faulted with. We, therefore, set aside the findings of the CIT(A) and direct the Assessing Officer to accept the suo motu disallowance. Hence, the appeal filed by the assessee is allowed. Penalty u/s 271(1)(c) - HELD THAT - Since the same is based on the quantum appeal and there is no finding given by the AO that the assessee furnished inaccurate particulars of income or concealed the particulars of income, the penalty does not survive as per the provisions of Section 271(1)(c) of the Income Tax Act, 1961. Hence, appeal filed by the assessee is allowed. Addition u/s 43A - foreign currency loans in respect of which foreign exchange gains or losses - for the purpose of investing in shares which were capital assets in the hand of the company in the relevant years, when the loan were raised - HELD THAT - It is pertinent to note that the Revenue has not brought on record that any capital assets were acquired from a country outside India during the relevant assessment year. The applicability of Section 43A will not be attracted when there is no acquisition of any capital assets in the relevant assessment year. CIT(A) rightly held that the assessee correctly offered net exchange gain earned by it on account of currency fluctuation computed by considering the rate of USD as on the date of loan taken in the earlier years and final settlement thereof in the year under reference. Since, the assessee already disallowed in its statement of taxable income for the A.Ys 2005-06 and 2006-07 notional losses accounted for by it to comply with AS- 11, no further disallowance of such losses was called for and the same amount to double disallowance. Thus, the CIT(A) rightly deleted the said addition. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of administrative, personnel, and financial expenses under Rule 8D of the Income Tax Rules. 2. Application of Rule 8D(2) for the Assessment Year 2007-08. 3. Deletion of additional disallowance under Section 14A of the Income Tax Act. 4. Addition under Section 43A concerning foreign exchange losses. 5. Penalty under Section 271(1)(c) for concealment or furnishing inaccurate particulars of income. Issue-wise Detailed Analysis: 1. Disallowance of Administrative, Personnel, and Financial Expenses under Rule 8D: The assessee challenged the disallowance of ?3,36,37,563 made by the Assessing Officer (AO) under Rule 8D, arguing that the suo moto disallowance of ?2,31,16,023 was reasonable. The CIT(A) upheld the AO's disallowance without considering the reasonability of the assessee's addition. The appellant argued that some expenses were incurred for other activities, such as financing, which earned interest income of ?53.09 Crs. 2. Application of Rule 8D(2) for Assessment Year 2007-08: The assessee contested the application of Rule 8D(2) by the AO, which was inserted by IT (Fifth Amdt.) Rules 2008, effective from 24.03.2008, for the Assessment Year 2007-08. The CIT(A) upheld the AO's application of Rule 8D(2) despite the assessee's contention that the rule should not apply retrospectively. 3. Deletion of Additional Disallowance under Section 14A: The Revenue appealed against the CIT(A)'s deletion of an additional disallowance of ?23,08,14,127 made by the AO under Section 14A. The CIT(A) found that the AO had not properly adjudicated the assessee's working of interest and administrative expenses, which were suo moto disallowed by the assessee. The Tribunal noted that the AO did not provide satisfaction regarding the incorrectness of the assessee's claim and that Rule 8D was not applicable for the year under consideration. The Tribunal directed the AO to accept the suo moto disallowance of ?67,48,50,222. 4. Addition under Section 43A Concerning Foreign Exchange Losses: The Revenue contested the CIT(A)'s deletion of ?4,80,25,006 under Section 43A, arguing that the foreign currency loans were raised for investing in shares, which were capital assets. The CIT(A) and Tribunal found that the assessee had not acquired any assets from a country outside India during the relevant years, and thus, Section 43A was not applicable. The Tribunal upheld the CIT(A)'s decision to delete the addition. 5. Penalty under Section 271(1)(c) for Concealment or Furnishing Inaccurate Particulars of Income: The assessee appealed against the penalty of ?1,13,02,230 under Section 271(1)(c), arguing that there was no concealment or furnishing of inaccurate particulars. The CIT(A) upheld the penalty, but the Tribunal found no basis for the penalty as the assessee had made a reasonable estimate for disallowance, which was accepted in earlier years. The Tribunal allowed the appeal, noting that the AO did not find any concealment or inaccurate particulars. Conclusion: The Tribunal allowed the assessee's appeals regarding the disallowance under Section 14A and the penalty under Section 271(1)(c), and dismissed the Revenue's appeal concerning the additional disallowance under Section 14A and the addition under Section 43A. The Tribunal emphasized the non-applicability of Rule 8D for the Assessment Year 2007-08 and the lack of satisfaction by the AO regarding the assessee's disallowance method.
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