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2021 (12) TMI 1205 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Assessee submitted that only exempt yielding investments were to be considered to compute the disallowance - HELD THAT - It is settled legal position that it was incumbent on the part of Ld. AO to record dissatisfaction, having regards to the accounts of the assessee, as to why the disallowance offered by the assessee was not acceptable. The failure to do so would make the disallowance bad in law. We find that no such dissatisfaction has been recorded by Ld. AO in the assessment order. Secondly, upon perusal of assessee's financial statements for the year ending 31.03.2011 31.03.2012 as placed on record, it could be seen that own funds in the shape of share capital and free reserves far exceed the investments made by the assessee and therefore, unless nexus of borrowed funds vis- -vis investment was established by Ld. AO, a presumption would run in assessee's favor that the investments were sourced out of assessee's own funds. We find that no such nexus has been established by Ld. AO. Thirdly, the disallowance as offered by the assessee is in accordance with the earlier decisions of the Tribunal for AYs 2010-11 2011-12. In fact, these decisions were followed in AY 2013-14 2019 (12) TMI 1567 - ITAT CHENNAI - The revenue preferred further appeal against the same before Hon'ble High Court of Madras 2020 (8) TMI 885 - MADRAS HIGH COURT wherein Hon'ble Court refused to admit the substantial question of law as raised by the revenue.
Issues Involved:
- Disallowance under section 14A of the Income Tax Act, 1961 with respect to Rule 8D computation. Detailed Analysis: 1. Delay Condonation Request: - The appeal faced a delay of 97 days due to the Covid-19 pandemic situation, which was condoned upon the submission by the Ld. DR. 2. Disallowance under Section 14A: - The core issue in the revenue's appeal was the disallowance under section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The Ld. AR argued that the issue was covered by earlier Tribunal orders in the assessee's case, and the impugned order followed these decisions accurately. 3. Factual Background: - The assessee, a resident corporate entity registered as a Non-Banking Finance Company, had made investments resulting in exempt income of ?9.10 Lacs. The Ld. AO computed a disallowance of ?721.61 Lacs under Rule 8D, including interest and expense disallowances. The Ld. CIT(A) directed the deletion of the additional disallowance based on favorable Tribunal decisions for previous assessment years. 4. Judicial Analysis: - The Tribunal found that the Ld. AO did not record dissatisfaction with the assessee's suo-moto disallowance, which was crucial for a valid disallowance. Additionally, the Tribunal noted that the assessee's own funds exceeded the investments, and no nexus was established by the Ld. AO regarding borrowed funds used for investments. 5. Precedents and Legal Position: - The disallowance offered by the assessee was consistent with earlier Tribunal decisions for AYs 2010-11 and 2011-12, which were also upheld in subsequent years. The Tribunal highlighted that the High Court refused to admit the revenue's substantial question of law in a related case. 6. Final Decision: - Considering the lack of dissatisfaction recorded by the Ld. AO, the absence of a nexus between borrowed funds and investments, and the consistency with previous Tribunal decisions, the Tribunal found no fault in the impugned order. Consequently, the appeal was dismissed on 15th December 2021.
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