2014 (6) TMI 4 - AT - Income Tax

ITAT decision: Partial allowance of appeal on 14A disallowance, overturns interest disallowance, remits 40(a)(ia) for reconsideration

The ITAT partially allowed the assessee's appeal regarding disallowance under section 14A of the Income-tax Act, 1956, by upholding the disallowance of ... Disallowance made u/s 14A r.w. Rule 8D(2)(ii) of the Act – Held that:- Following Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - Delhi High Court] - rule 8D is applicable from the AY 2008-09 - From the assessee’s balance sheet, it can be seen that the Shareholders’ funds stand against Investment in shares - the amount invested in such securities is far in excess of the shareholders’ funds - CIT(A) was not justified in sustaining disallowance under Rule 8D(2)(ii) because the Investment in securities is quite less than the shareholders’ funds - the total expenses incurred by the assessee are much more than the disallowance and the incurring of expenses for earning exempt income is very much there - the disallowance as per the mandate of rule 8D(2)(iii) is held to have been rightly made and confirmed – Decided partly in favour of Assessee. Deletion of disallowance u/s 40(a)(ia) of the Act – Held that:- The ACIT authorized the assessee to make payment to M/s Vikson Finance & Investment Pvt. Ltd. without deduction tax at source only during the period 23.1.2008 to 31.3.2008 - The assessee was regularly deducting tax at source from brokerage payment up to 30.11.2007 - How the assessee presumed for not deducting tax at source for the period 1.12.2007 to 22.1.2008 is not understandable - there can be no question of claiming expense in first year and making disallowance in the subsequent year, if there is failure to deduct tax at source as per the relevant provisions - there is no reference to section 194H in the assessment order and further in the absence of any finding on this issue by the CIT(A) – the matter is remitted back to the CIT(A) for adjudication – Decided in favour of Revenue. Issues:1. Disallowance under section 14A of the Income-tax Act, 1956.2. Disallowance under section 40(a)(ia) of the Act.Issue 1: Disallowance under section 14A of the Income-tax Act, 1956:The appeal involved cross appeals by the assessee and the Revenue arising from the order passed by the CIT(A) regarding the assessment year 2008-09. The main issue in the assessee's appeal was the disallowance of Rs. 7,25,956 under section 14A. The Assessing Officer disallowed this amount, comprising of interest and expenses, as the assessee did not offer any disallowance under section 14A. The ITAT found that the provisions of section 14A read with rule 8D were applicable based on relevant judgments. The ITAT held that the disallowance of interest was unjustified as the shareholders' funds exceeded the investment in securities, thus no interest could be attributed to the investment. However, the disallowance of expenses under rule 8D(2)(iii) was upheld as the total expenses incurred were more than the disallowance amount.Issue 2: Disallowance under section 40(a)(ia) of the Act:The Revenue raised the issue of deletion of disallowance of Rs. 1,19,05,785 made by the Assessing Officer under section 40(a)(ia). The disallowance related to sub-brokerage paid to a company where tax was not deducted at source for a specific period. The CIT(A) deleted this disallowance based on the company's certificate for no deduction of tax at source. However, the ITAT found that the authorization for no tax deduction was only valid for a specific period, and the assessee failed to deduct tax at source for another period. The ITAT disagreed with the CIT(A)'s decision and remitted the matter back to reconsider the issue of tax deduction under section 194H.In conclusion, the ITAT partially allowed the assessee's appeal and allowed the Revenue's appeal for statistical purposes. The judgment provided detailed analysis on the disallowances under sections 14A and 40(a)(ia) of the Income-tax Act, 1956, based on relevant legal provisions and precedents.