2022 (2) TMI 488 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Assessee submitted that the own funds available is more that investment made thus the interest disallowance is not called for - HELD THAT - As the own funds available with the assessee would become lower, only if the value of investments and the amount of Loans and advances are aggregated together. If we compare the own funds with the value of investments, then the own funds is more. Hence the ratio laid down by the jurisdictional High Court in the case of Microlabs Ltd 2016 (4) TMI 219 - KARNATAKA HIGH COURT to the effect that, in such kind of cases, the presumption would be that the investments have been made out of own funds, would squarely apply to the facts of the present case - Decided in favour of assessee. Disallowance made u/r 8D(2)(iii) - We set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with the direction to follow the ratio of decision rendered by the Special bench in the case of Vireet Investments P Ltd 2017 (6) TMI 1124 - ITAT DELHI Disallowance u/s 14A of the Act to be imported in sec.115JB - The issue urged by the assessee is a legal issue and the same has since been settled by the Special bench in the case of Vireet Investments (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that the disallowance made u/s 14A of the Act cannot be imported in sec.115JB of the Act, meaning thereby, the disallowance required to be made under clause (f) of Explanation 1 to sec.115JB should be computed separately without having regard to Rule 8D of IT Rules. Even though the AO has not computed the total income u/s 115JB of the Act, yet there is merit in the contention of Ld A.R that the correct legal principles should have been followed. Accordingly, we restore this issue to the file of AO with the direction to compute the addition to be made under clause (f) of Explanation 1 to sec.115JB of the Act independently on the basis of financial statements of the assessee

Summary

Issues:
Dispute over disallowance made under section 14A of the Income-tax Act, 1961 for the assessment year 2008-09.

Detailed Analysis:

1. Background: The cross appeals and cross objection were filed against the order dated 30-05-2017 by the Ld CIT(A)-11, Bangalore regarding the disallowance made under section 14A of the Income-tax Act, 1961.

2. Previous Tribunal Order: The Tribunal had earlier restored the issue of disallowance of interest expenditure and administrative expenses to the AO for fresh consideration under Rule 8D.

3. Assessee's Exempt Income: The assessee had earned exempt income and voluntarily disallowed a certain amount consisting of interest and expenditure disallowance.

4. AO's Disallowance: The AO disallowed a significant amount of interest and expenditure, adding it to the total income and book profit under section 115JB of the Act.

5. Ld CIT(A)'s Decision: The Ld CIT(A) deleted the interest disallowance but confirmed the expenditure disallowance, citing relevant case laws and judgments.

6. ITAT Decision on Interest Disallowance: ITAT found that the own funds exceeded the value of investments, excluding certain amounts as per precedents, and set aside the AO's enhanced interest disallowance.

7. Cross Objection: The assessee raised objections related to the disallowance of expenses, which were considered separately due to the focus on interest disallowance in the appeal.

8. ITAT Decision on Expense Disallowance: ITAT set aside the Ld CIT(A)'s order on expense disallowance, directing the AO to re-determine the disallowance following a specific precedent.

9. Remaining Issue: The only surviving issue in the appeal related to the addition made while computing book profit under section 115JB of the Act.

10. Legal Issue: The ITAT considered the legal issue regarding the import of disallowance under section 14A into section 115JB, directing the AO to compute the addition independently.

11. Final Decision: The appeal of the revenue was dismissed, while the appeal and cross objection of the assessee were treated as allowed.

In conclusion, the ITAT's detailed analysis and decision addressed the various aspects of the dispute over disallowance under section 14A of the Income-tax Act, 1961 for the assessment year 2008-09, providing clarity on the treatment of interest and expenditure disallowances and the computation of book profit under section 115JB.