2021 (1) TMI 1037 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - As the entire investments have been made out of own funds and no borrowed funds have been used. However we are of the considered view that for earning exempt income some expenditure needs to be disallowed. Considering the facts of the case in totality we are of the opinion that a disallowance of 2 lakhs should meet the ends of justice. We accordingly direct the Assessing Officer to restore the disallowance u/s 14A to 2 lakhs. Ground taken in Memorandum of appeal is partly allowed.

Summary

Issues:
1. Addition made under section 14A of the Income-tax Act, 1961.
2. Claim of Excise Duty Subsidy & Interest Subsidy as Capital receipt.
3. Claim of education cess as an allowable expenditure.

Issue 1: Addition made under section 14A of the Income-tax Act, 1961:
The appeal was against the CIT(A)'s order regarding the addition made under section 14A of the Income-tax Act, 1961. The Assessing Officer computed the disallowance at ?20,06,321 based on the provisions of section 14A r.w.r 8D. The assessee contended that no expenses should be disallowed as the investments were made out of equity funds and not borrowed funds. However, the ITAT concluded that some expenditure needed to be disallowed for earning exempt income. After considering all facts, a disallowance of ?2 lakhs was directed, restoring the disallowance under section 14A to ?2 lakhs.

Issue 2: Claim of Excise Duty Subsidy & Interest Subsidy as Capital receipt:
The assessee claimed Excise Duty Subsidy & Interest Subsidy as capital receipts under the New Industrial Policy. Citing relevant case laws, the appellant argued that these subsidies were granted for industrial development and employment generation, making them capital in nature. The ITAT considered the documentary evidence and found that the investments were made out of own funds, not borrowed funds. While acknowledging the capital nature of the subsidies, the ITAT directed the Assessing Officer to examine the claim afresh, considering the Tribunal's previous decision in favor of the assessee. The claim was allowed for statistical purposes.

Issue 3: Claim of education cess as an allowable expenditure:
The assessee sought deduction of education cess as an allowable expenditure in computing total income. Relying on a decision of the Hon'ble Rajasthan High Court, the ITAT directed the Assessing Officer to consider this claim in light of the court's decision. The claim for deduction of education cess was allowed for further examination by the Assessing Officer.

In conclusion, the ITAT partially allowed the appeal, directing a reduced disallowance under section 14A, allowing the claim of Excise Duty Subsidy & Interest Subsidy as capital receipts for reassessment, and permitting further examination of the claim for education cess as an allowable expenditure. The ITAT emphasized the need for a fresh assessment based on the specific circumstances and legal precedents cited by the assessee.