2022 (7) TMI 320 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - DR submitted that the assessee having borrowed funds for the purpose of making the investments in the sister concern and disallowance u/s. 14A of the Act if not confirmed, a disallowance u/s. 36(1)(iii) of the Act should be considered by the Tribunal - HELD THAT - Coming to the argument of CIT-DR that the disallowance u/s. 36(1)(iii) of the Act is liable to be made, we are unable to agree with this argument of ld. CIT-DR as this is not an issue that has been raised by the AO or the CIT(A) and it is not open to an appellate authority, being the Tribunal, to make a disallowance under the provision which has not been invoked by the AO. It is also to be mentioned here that in an appeal the revenue is fully entitled to defend the order of the AO before the Tribunal. It cannot seek to bring to tax any income or take refuge of any of the other provisions of the Act for the purpose of making a fresh addition or disallowance. The assessee admittedly has not received any exempt income. The assessee's investment in its sister concern are claimed by the assessee to be in the business interest of the assessee insofar as the assessee has started its activity in coal also. But the assessee has not been able to point out in the audit report or the balance sheet where it has dealt with in coal. A perusal of the decision of the Hon'ble Supreme Court in the case of Chettinad Logistics Pvt. Ltd. ( 2018 (7) TMI 567 - SC ORDER as also the decision in the case of GVK Project and Technical Services Ltd. ( 2019 (5) TMI 725 - SUPREME COURT shows that no disallowance u/s. 14A can be made if no exempt income has been received. However, under the provisions of rule 8D(2)(ii), admittedly, a disallowance is to be made and to such extent the disallowance has been made by the AO and confirmed by the CIT(A). Therefore, the addition representing Rs. 1,49,06,500/- stands confirmed. The balance of the disallowance as made by the AO and confirmed by the CIT(A) by invoking the provisions of Section 14A r.w.r. 8D, stands deleted. Appeal of assessee is partly allowed.

Summary

Issues:
Appeal against disallowance u/s. 14A of the I.T. Act, 1961 r.w. rule 8D of I.T. Rules, 1962 for AY 2015-2016.

Analysis:
The appeal was filed by the assessee challenging the order confirming the disallowance u/s. 14A of the I.T. Act, 1961 r.w. rule 8D of I.T. Rules, 1962 made by the AO. The assessee had invested Rs. 396.14 crores in equity shares and claimed interest outgo of Rs. 8.95 crores. The contention was that since no exempt income was earned, no disallowance u/s. 14A r.w.r. 8D was warranted, citing relevant Supreme Court decisions. The Revenue argued that as the assessee borrowed funds for investments, a disallowance u/s. 36(1)(iii) should be considered if u/s. 14A is not confirmed. The Tribunal noted the assessee's trading activities and interest income, rejecting the Revenue's argument for additional disallowance u/s. 36(1)(iii) as it was not raised earlier. The Tribunal also observed that no exempt income was received by the assessee, leading to the confirmation of a partial disallowance under rule 8D(2)(ii) while deleting the rest of the disallowance made by the AO and confirmed by the CIT(A).

The Tribunal found that the assessee's claim of investments in sister concerns being in the business interest was not substantiated with evidence of dealing in coal, as claimed. Citing Supreme Court precedents, it was established that no disallowance u/s. 14A can be made in the absence of exempt income. However, under rule 8D(2)(ii), a disallowance was warranted, leading to the confirmation of a specific amount. The Tribunal emphasized that the Revenue cannot introduce new provisions for fresh additions or disallowances during an appeal. Consequently, the appeal filed by the assessee was partly allowed, with the disallowance under Section 14A r.w.r. 8D partially confirmed and the rest deleted.

In conclusion, the Tribunal's decision balanced the arguments presented by the assessee and the Revenue, considering the absence of exempt income and the applicability of rule 8D(2)(ii) for making a partial disallowance. The judgment clarified the limitations on introducing new provisions during appeals and highlighted the necessity of substantiating claims with relevant evidence to support the case effectively.