2021 (1) TMI 633 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D(2) - assessee had made suo moto disallowance - assessee pleaded before the ld CIT-A that it had sufficient own funds and hence there cannot be any disallowance of any interest under the second limb of Rule 8D(2) of the Rules - HELD THAT - Once sufficient own funds are available with the assessee for making investments, then there cannot be any disallowance of interest under second limb of Rule 8D(2) of the Rules, eventhough the same was erroneously made by the assessee in the return of income. We are conscious of the fact that this direction may eventually go to reduce the returned income of the assessee and in that regard, we hold that the revenue is authorised to collect taxes in accordance with law as per Article 265 of the Constitution of India and not based on the consent or acceptance of the assessee either in the return or during the course of assessment or appellate proceedings. There is no estoppel against the statute. In view of our aforesaid decision directing the ld AO to delete the disallowance of interest under second limb of Rule 8D(2) of the Rules, the alternative ground raised by the assessee on without prejudice basis that only the net interest is to be considered for working out the disallowance, need not be gone into and accordingly not adjudicated herein. Disallowance of indirect expenses under third limb of Rule 8D(2) of the Rules, we direct the ld AO to consider only those investments which had actually yielded exempt income for working out the disallowance thereon by placing reliance on the decision in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI - AO is directed to recompute accordingly and further reduce the disallowance already made by the assessee in the return under the third limb thereon. The grounds raised by the assessee as well as the revenue are disposed off in the aforesaid terms.- Decided in favour of assessee.

Summary

Issues Involved:
Disallowance made under section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules.

Analysis:
1. The appeals arose from the order of the Commissioner of Income Tax (Appeals) against the assessment order passed under section 143(3) of the Income Tax Act for the assessment year 2013-14.
2. The main issue in the appeals was the disallowance made under section 14A of the Act read with Rule 8D(2) of the Rules.
3. The assessee had earned dividend income and claimed it as exempt, making a suo moto disallowance while filing the return of income.
4. The Assessing Officer substituted the disallowance under Rule 8D(2) as per the Act.
5. The assessee contended that it had sufficient own funds and only investments yielding exempt income should be considered for disallowance.
6. The Commissioner held that as per the financials and legal precedents, the interest disallowance under Rule 8D(2)(ii) was deleted.
7. Both the assessee and the revenue were aggrieved and appealed.
8. The Tribunal found that the assessee had enough own funds, following legal precedents, and directed the Assessing Officer to delete the interest disallowance under Rule 8D(2).
9. The Tribunal directed the Assessing Officer to consider only investments yielding exempt income for disallowance of indirect expenses under Rule 8D(2)(iii).
10. Consequently, the appeal of the revenue was dismissed, and the appeal of the assessee was allowed.

This detailed analysis provides a comprehensive overview of the judgment, focusing on the issues involved and the Tribunal's decision regarding the disallowance made under section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules.