2022 (11) TMI 1205 - AT - Income Tax

Addition u/s 14A r.w. Rule 8D - assessee had earned substantial dividend income - AO has made the addition by observing that where investment has been made in shares which did not yield any dividend income in the year under consideration, the expenditure incurred for earning income was deductible notwithstanding the fact that no such income has been earned - DR submitted that the assessee has capitalized substantial amount of interest paid by him on the amount invested, therefore, the amount of disallowance has to be calculated accordingly - HELD THAT - Hon ble ITAT, Delhi has taken a similar view in the cases of Mitsubishi Corporation India Pvt. Ltd. vs. DCIT 2015 (1) TMI 48 - ITAT DELHI and LG- Chemical India Pvt. Ltd. 2014 (12) TMI 294 - ITAT DELHI whereby the ITAT has deleted the additions made u/s 14A on the ground that no exempt income has been earned by the appellant. When the entire amount of dividend income of Rs.1,22,16,840/- has been offered for taxation by the assessee in its return of income and no exempt income has been claimed for AY 2015-16, then, the disallowance u/s 14A of the Act r.w.r. 8D of the Rules cannot be held as sustainable in view of the judgement of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT and in view of the judgement of CIT vs. Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER Contention of DR that the assessee has capitalized huge amount of interest paid by him is concerned, this also show that the assessee has incurred expenditure of interest paid towards amounts used for investments in shares, but, has not claimed interest amount as revenue expenditure and has capitalized the same - instead of claiming expenditure on interest payment, the assessee has capitalized the same by enhancing the value of investment, therefore, no addition is called for u/s 14A of the Act r.w.r. 8D of the Rules in this regard. In view of the above, we are unable to see any ambiguity, perversity or any other valid reasons to interfere with the findings of the ld.CIT(A). The ground raised by the Revenue is dismissed.

Summary

Issues: Disallowance u/s 14A r.w. Rule 8D of the Act

Detailed Analysis:

1. Disallowance u/s 14A r.w. Rule 8D of the Act:
The appeal was filed by the Revenue against the order of the CIT(A) regarding the disallowance made by the AO under section 14A r.w. Rule 8D of the Act. The Revenue contended that the disallowance was justified due to the substantial dividend income earned by the assessee. On the other hand, the assessee argued that the entire dividend income was offered for taxation, and no exempt income was claimed for the relevant assessment year. The assessee relied on the decisions of the Hon'ble jurisdictional High Court of Delhi and the Hon'ble Supreme Court to support their position. The CIT(A) deleted the addition, emphasizing that since no exempt income was shown by the appellant during the year, the disallowance under section 14A r.w. Rule 8D could not be sustained. The ITAT also noted that the assessee had capitalized the interest paid on investments in shares, indicating that the interest amount was not claimed as revenue expenditure but was capitalized instead. Consequently, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

2. Charging of Interest u/s 234A, 234B & 234C of the Act:
The appeal also raised a ground regarding the charging of interest under sections 234A, 234B, and 234C of the Act. The ITAT observed that the levy of interest is mandatory and consequential to the determination of total income, as confirmed by the Hon'ble Supreme Court in a previous judgment. Therefore, the ITAT dismissed this ground of appeal, affirming the mandatory nature of interest levy under the specified sections of the Act.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the disallowance made under section 14A r.w. Rule 8D of the Act, as the entire dividend income was offered for taxation, and no exempt income was claimed for the relevant assessment year. Additionally, the ITAT dismissed the appeal regarding the charging of interest under sections 234A, 234B, and 234C of the Act, citing the mandatory nature of interest levy.