2015 (4) TMI 880 - HC - Income Tax

High Court upholds ITAT decision on interest expenditure disallowance for exempt income.

The High Court of Bombay dismissed the Revenue's appeal challenging the order of the Income Tax Appellate Tribunal regarding the disallowance of interest ... Deduction u/s 14A - Held that:- We do not think, upon reading of the Tribunal's order, that it is vitiated by any error of law apparent on the fact of the record. It cannot be termed as perverse because in the return of income declaring total income of ₹ 1,32,82,806/-, the Assessing Officer noticed that a sum of ₹ 32,74,921/- has been received as dividend and ₹ 87,52,106/- as long term capital gains, which has been claimed as exempt under section 10 of the Income Tax Act, 1961. We are only concerned here with the dividend. The Assessing Officer held that certain amount of administrative expenditure was attributable towards earning the dividend income and difficult to accept the contention of the Assessee that no expenditure has been incurred to earn such income. He therefore disallowed the sum of ₹ 76,15,743/- under section 14A read with Rule 8D. This order of the Assessing Officer was partly set aside in Appeal by the Commissioner and held that even if the Assessing Officer's view is to be maintained, still, the entire claim could not have been disallowed. The Tribunal had taken earlier view that 10% of the dividend earned should be treated as expenditure incurred. Thus, in earning the income of dividend 10% was set aside towards expenses. This view of the Tribunal was applied and in identical facts by the Commissioner to the present case. Such an approach of the Commissioner and relying upon the law laid down by this Court in the case of Godrej and Boyce Manufacturing Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) has not been interfered with in Appeal by the Tribunal. - Decided in favour of assessee. Issues:Challenge to order passed by Income Tax Appellate Tribunal regarding disallowance of interest expenditure attributable to exempt income for the assessment year 2007-08.Analysis:The High Court of Bombay heard an appeal by the Revenue challenging the order of the Income Tax Appellate Tribunal, Mumbai Bench, related to the assessment year 2007-08. The Revenue contended that the disallowance of interest expenditure in proportion to interest related to exempt income was a substantial question of law, citing the case law of Godrej and Boyce Manufacturing Co. Ltd. vs. Deputy Commissioner of Income Tax. However, the Court observed that the Tribunal's order was not vitiated by any apparent error of law. The Assessing Officer had disallowed a specific sum under section 14A of the Income Tax Act, 1961, attributing administrative expenditure towards earning dividend income. The Commissioner partially set aside the Assessing Officer's order, and the Tribunal upheld the view that 10% of the dividend earned should be considered as expenses incurred. The Court noted that the Commissioner's approach, based on the precedent set by the Godrej case, was reasonable and declined to interfere with the Tribunal's decision.The Court concluded that no substantial question of law arose in the appeal, as the issue had been decisively settled against the Revenue in previous judgments. The Division Bench of the Court had already ruled in favor of the Assessee, and the Tribunal's decision aligned with this precedent. Therefore, the Court dismissed the Revenue's appeal, stating that it failed to establish any legal grounds for challenging the Tribunal's order. The judgment did not award any costs in the matter.