2017 (11) TMI 1880 - AT - Income Tax

Tribunal limits disallowance under section 14A to voluntary amount.

Shoppers Stop Ltd. Versus DCIT, Central Circle 4 (2), Mumbai

The tribunal allowed the appeal, directing the Assessing Officer to limit the disallowance under section 14A to the voluntary amount of &8377; 13.10 ... Disallowance u/s 14A - assessee has no exempt income during the period relevant to the assessment year under consideration - HELD THAT:- The assessee has not made any investment during the year under consideration. There is no dispute that all investment has been made in the subsidiaries companies as strategic investment so as to get controlling interest in such subsidiaries. The Hon’ble Delhi High Court in case of Cheminvestment Ltd. Vs. CIT [2015 (9) TMI 238 - DELHI HIGH COURT] held that, if there is no dividend income, then there cannot be any correspondence allowance. We have noted that the assessee has voluntary disallowed ₹ 13.10 Lakhs as administrative expenses for investment in its associate companies/subsidiaries. The assessee has placed on record fund flow statement (Page 33 of PB), which clearly show that the assessee has sufficient own interest free fund of ₹ 1,26,289.65/- Lakhs as on 31.03.2012. Thus, in our considered view there was no justification for making disallowance as per the provisions of section 14A r.w. Rule 8D. Issues Involved:Disallowance under section 14A of the Income Tax Act for Assessment Year 2012-13.Detailed Analysis:1. Disallowance under Section 14A:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) sustaining the disallowance made by the Assessing Officer under section 14A of the Income Tax Act. The assessee, engaged in the retail business, declared a total income of &8377; 78,50,58,330/- for the relevant assessment year. The AO disallowed &8377; 6,61,94,455/- under section 14A of the Act. On appeal, this disallowance was confirmed by the CIT(A), leading to the current appeal before the tribunal.2. Arguments and Submissions:The Authorized Representative argued that the assessee did not earn any exempt income during the relevant assessment year and the investments were made in associate concerns using interest-free funds. The AO invoked Rule 8D for disallowance, which was contested by the AR. The AR highlighted that investments were strategic and voluntary disallowance of &8377; 13.10 Lakhs was made for administrative expenses related to investments. The AR relied on relevant case laws and financial statements to support the contention.3. Tribunal's Decision:The tribunal noted that the assessee had no exempt income during the assessment year and had sufficient interest-free funds to make investments in subsidiaries for strategic reasons. Referring to a previous decision in the assessee's own case for AY 2008-09, the tribunal emphasized that there was no justification for disallowance under section 14A r.w. Rule 8D. The tribunal directed the AO to restrict the disallowance to the voluntary amount of &8377; 13.10 Lakhs, overturning the orders of the AO and CIT(A).4. Conclusion:Considering the absence of exempt income, strategic nature of investments, and adequacy of interest-free funds, the tribunal allowed the appeal and directed the AO to limit the disallowance to the voluntary amount. The decision was based on the principle that disallowance under section 14A should be justified by the specific circumstances and financial position of the assessee.This judgment highlights the importance of substantiating disallowances under section 14A with relevant facts and justifications, especially in cases where no exempt income is earned, and investments are made for strategic purposes using internal funds.