9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (1) TMI 92 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - Interest paid is less than interest earned for the year. Therefore we direct the Assessing Officer to delete the additions made towards interest expenses under Rule 8D(2)(ii) of IT Rules 1962. As regards disallowance of other expenses under Rule 8D(2)(iii) @ 0.5% of average value of investments law is very clear inasmuch as there is no scope for Assessing Officer to go for ad-hoc disallowance when assessee has not maintained separate books of account for investments activity and business. When there is no separate books of account for both activities common expenditure relatable to investment activity and business activity has to be allocated on a systematic basis for which a separate method is prescribed under Rule 8D of IT Rules 1962. In this case the Assessing Officer has applied method provided under Rue 8D(2) (iii) @ 0.5% of average value of investments to compute disallowance of other expenses. We do not find any error in the findings recorded by the authorities below which is in accordance with law and hence we are inclined to uphold the order of the learned CIT(A) and reject the grounds taken by the assessee in respect of disallowance of other expenses under Rule 8D(2)(iii) of IT Rules 1962. Appeal filed by the assessee is partly allowed.
Issues Involved:
Disallowance under section 14A of the Income Tax Act for assessment year 2015-16. Analysis: The appellant contested the disallowance of ?16,23,470 made under section 14A of the Act. The appellant argued that the interest paid of ?10,76,939 was not attributable to investments in firms exempt from tax under section 10(2A) and should not be disallowed under Rule 8D(2)(ii). The appellant claimed a direct nexus between borrowals and advances/loans given, stating that the interest paid should be adjusted against interest received and offered for tax. The appellant asserted that no borrowed funds were invested in the firms and that the borrowed funds were used for loans to others, not for investments. The Assessing Officer also disallowed ?7,66,662 under Rule 8D(2)(iii). The Assessing Officer computed the disallowance under section 14A in accordance with Rule 8D, adding back ?16,23,470 to the total income. The Assessing Officer applied Rule 8D(2)(ii) towards interest expenditure and Rule 8D(2)(iii) towards other expenses. The CIT(A) upheld the additions made by the Assessing Officer, citing judicial precedents, including the decision of the Supreme Court in a specific case. The appellant argued that no disallowance should be made towards interest expenditure as it was borrowed for business purposes, and only net interest expenditure should be considered. The appellant contended that no specific expenditure had a direct nexus to exempt income, therefore no disallowance should be made under Rule 8D(2)(iii). The Departmental Representative supported the CIT(A)'s order, stating that disallowances under section 14A should be computed in accordance with Rule 8D. The Tribunal held that disallowance under section 14A was applicable to exempt income like share of profit from a partnership firm. Regarding interest expenditure, the Tribunal directed the Assessing Officer to delete the additions made under Rule 8D(2)(ii) as the interest paid was less than interest earned. However, the Tribunal upheld the disallowance of other expenses under Rule 8D(2)(iii) @ 0.5% of the average value of investments, as there was no separate method for allocation of common expenditure. In conclusion, the appeal was partly allowed, with the Tribunal directing the deletion of interest expenses additions but upholding the disallowance of other expenses under Rule 8D(2)(iii) of the IT Rules, 1962.
|
