2015 (3) TMI 531 - AT - Income Tax

Tribunal directs CIT(A) to verify assessee's computation under Section 14A

The Tribunal allowed the assessee's appeal for statistical purposes, directing the matter to be sent back to the CIT(A) for verification of the ... Disallowance u/s 14A r.w.r. 8D - CIT(A) sustained part addition - Held that:- On a specific query by the Bench, whether the Revenue has filed any appeal against the order of the ld.CIT(A), it was submitted by the ld.Sr.DR that no such appeal has been filed. The assessee has given a separate chart. Both the Representatives of the parties agreed that the issue be restored to the file of ld.CIT(A) for verification of the computation made by the assessee. Therefore, the matter is restored to the file of ld.CIT(A) to verify the correctness of the claim of the assessee as computed in the so-called chart enclosed along with the written synopsis by the assessee. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Quantum of disallowance upheld by the CIT(A).Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The primary issue in this case revolves around the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules, 1962. The AO initially made a disallowance amounting to Rs. 1,04,63,924/-. The assessee contested this disallowance, arguing that no disallowance under Section 14A was warranted. The assessee's contention was based on the fact that the actual interest income was Rs. 3,08,00,550, whereas the interest outgo was Rs. 2,65,14,704, resulting in a net interest surplus of Rs. 42,85,846. The assessee argued that netting of interest was required, and hence, no disallowance should be made. The assessee relied on the decision in the case of Safal Realities Pvt. Ltd., where it was held that when interest income exceeds interest expenditure, the provisions of Section 14A should not be invoked.2. Quantum of Disallowance Upheld by the CIT(A):The CIT(A) had restricted the disallowance to Rs. 14,05,012/-. The assessee argued that the CIT(A) had erred in upholding this disallowance. The CIT(A) had given a finding that the interest earned from the investment in the firm Gokuldham Developers was taxed as business income, and hence, the investment to that extent could not be held to be earning exempt income. The assessee submitted that the revised working of disallowance under Rule 8D, considering the net interest expenditure, would amount to Rs. 4,55,656/- instead of Rs. 14,05,012/-. The assessee also argued that there were sufficient interest-free funds available amounting to Rs. 11,50,60,324 as against the investments considered for disallowance under Section 14A, which were Rs. 3,44,99,076. Additionally, the assessee contended that the administrative expenses disallowance of Rs. 1,33,745 was based on a formulaic approach under Rule 8D without establishing any nexus between the expenditure incurred and the earning of tax-free income.Conclusion:The Tribunal, after hearing the rival submissions and perusing the material on record, decided to restore the matter to the file of the CIT(A) for verification of the computation made by the assessee. Both parties agreed to this course of action. The Tribunal directed the CIT(A) to verify the correctness of the assessee's claim as computed in the chart enclosed with the written synopsis. Consequently, the grounds raised in the assessee's appeal were allowed for statistical purposes.Final Order:The appeal of the assessee was allowed for statistical purposes, and the matter was restored to the file of the CIT(A) for verification. The order was pronounced in the Court on February 26, 2015, at Ahmedabad.