Tribunal Partly Allows Appeal: Orders Deletion of Rs. 2.49 Crore Disallowance for MAT, Confirms Rs. 490.91 Lakh Disallowance.

The Tribunal issued a mixed verdict, partly allowing the appeal. It ordered the deletion of a disallowance of Rs. 2,49,38,699 under section 14A for MAT computation under section 115JB and directed the AO to exclude investments without exempt income when computing disallowance under section 14A with Rule 8D. Additionally, the Tribunal deleted a disallowance of Rs. 50,45,000 under Rule 8D(2)(ii) in the normal income computation, while confirming a disallowance of Rs. 490.91 lacs under Rule 8D(2)(iii). The decision was based on established legal principles and was pronounced in open court on 09/02/2018.

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Issues Involved:
1. Disallowance under Rule 8D for MAT computation under section 115JB.
2. Exclusion of investments without dividend income while computing disallowance under section 14A read with Rule 8D.
3. Allocation of own funds versus borrowed funds for investments.

Detailed Analysis:

1. Disallowance under Rule 8D for MAT computation under section 115JB:
The appellant challenged the disallowance made under Rule 8D in the MAT computation under section 115JB. The appellant argued that the disallowance under Rule 8D should not apply for MAT computation. The Tribunal referred to the Special Bench decision in ACIT v. Vireet Investment (P.) Ltd., which held that computation under clause (f) of Explanation 1 to section 115JB(2) should be made without resorting to the computation under section 14A read with Rule 8D. Only those investments yielding exempt income during the year should be considered. Following this precedent, the Tribunal directed the AO to delete the addition of Rs. 2,49,38,699 made under section 14A while calculating book profit under section 115JB.

2. Exclusion of investments without dividend income while computing disallowance under section 14A read with Rule 8D:
The appellant contended that investments which did not yield any dividend income should be excluded while computing disallowance under section 14A read with Rule 8D. The Tribunal noted that the appellant had received exempt income during the year and thus, the disallowance under Rule 8D(2)(iii) was applicable. However, the Tribunal directed the AO to exclude the investments that did not yield any exempt income during the year while computing the disallowance under section 14A read with Rule 8D.

3. Allocation of own funds versus borrowed funds for investments:
The appellant argued that its own funds exceeded the total investments, implying that investments were made from its own funds rather than borrowed funds. The Tribunal referred to the Bombay High Court decision in CIT v. HDFC Bank Ltd., which established the presumption that if own funds exceed investments, it should be presumed that investments are made from own funds. Applying this principle, the Tribunal directed the AO to delete the disallowance of Rs. 50,45,000 made under Rule 8D(2)(ii) in the normal computation of income.

Conclusion:
The Tribunal provided a mixed verdict:
- Deleted the disallowance of Rs. 2,49,38,699 made under section 14A for MAT computation under section 115JB.
- Directed the AO to exclude investments without exempt income while computing disallowance under section 14A read with Rule 8D.
- Deleted the disallowance of Rs. 50,45,000 under Rule 8D(2)(ii) in the normal computation, confirming the disallowance of Rs. 490.91 lacs under Rule 8D(2)(iii).

Final Order:
The appeal was partly allowed. The Tribunal ordered the deletion of certain disallowances while confirming others, based on the principles established in relevant case laws. The decision was pronounced in open court on 09/02/2018.

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