2021 (7) TMI 4 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - contention of the assessee is that since the assessee has surplus reserves, it may be presumed that the investments were made out of interest-free funds - HELD THAT - The assessee was unable to show whether sufficient reserves and surplus are available on the date of investment made. Merely showing statistical data at the year end is not sufficient and she should have proved before the authorities below that the assessee has surplus funds which have been invested - on perusal of the financial statements, there was hardly investment of only ₹ 4,30,164/- made during the year. The assessee has invested in the earlier years - we observe that there was increase in the reserves and surplus during the impugned AY is ₹ 95,71,47,370/-. The details of investments are appearing in Note No. 8 where the increase in the investments in mutual funds only by ₹ 4,30,164/-. The assessee also tried to explain that investments were made on 31st March, 2007 in mutual funds of ₹ 1,95,58,373/-, which has been carried forward till the impugned AY, but, it is not clear that exact scrips were in existence during the impugned AY and the quantum of mutual fund investments has also been reduced from 2007 to 2013 which only ₹ 45,43,087/-. The total investments at the year end as per Schedule No. 8 is ₹ 2,75,95,387/-, but, the assessee has not explained the rest of the amount of investment from where it has been invested either from own funds or from interest bearing funds. As during the impugned AY, the assessee has also paid interest. While perusing the order of the AO, we notice that the AO has wrongly taken the figures of investments while disallowing u/s. 14A whereas, the actual investments are much lower than quoted by the AO. Therefore, the issue in dispute is restored back to the file of the AO for recalculation of disallowance made u/s. 14A Assessee drew our attention to the disallowance made under Rule 8D(2)(iii) and submitted that the AO has taken wrong figures while calculating the disallowance under the said section. Therefore, we remit this issue is also to the file of the AO with a direction recompute the disallowance under the said section with correct figures. Ground No. 2 4 raised on these issues is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of expenditure under section 14A r.w.r. 8D of the Income Tax Act, 1961.
2. Upholding of interest charged under section 234A by the Assessing Officer.

Issue 1: Disallowance of Expenditure under Section 14A r.w.r. 8D:
The appeal was filed against the CIT(A) order for AY 2013-14 involving disallowance of expenditure of ?18,18,478 under section 14A of the Act. The Assessing Officer computed the disallowance based on investments and exempt income received by the assessee. The CIT(A) confirmed the disallowance. The appellant argued that investments were made from interest-free funds and sought deletion of the disallowance. The ITAT observed discrepancies in the AO's calculations and lack of clarity on the source of investments. The issue was remitted back to the AO for recalculation. The ITAT allowed the appeal for statistical purposes, directing the AO to recompute the disallowance accurately.

Issue 2: Upholding of Interest Charged under Section 234A:
The appellant contested the interest charged under section 234A by the Assessing Officer. The ITAT noted that interest under this section is consequential and directed the AO to act accordingly. The appeal was treated as allowed for statistical purposes. The judgment was pronounced on 15th June 2021 by the ITAT Hyderabad.

In summary, the ITAT Hyderabad addressed the issues of disallowance of expenditure under section 14A r.w.r. 8D and the interest charged under section 234A for AY 2013-14. The ITAT remitted the disallowance issue back to the AO for accurate calculation and directed the AO on the interest charged under section 234A. The appeal was allowed for statistical purposes, emphasizing the importance of precise calculations and adherence to legal provisions in income tax assessments.