2012 (9) TMI 1191 - AT - Income Tax

Tribunal allows appeal, rejects disallowance of interest & expenses under sections 14A/8D. Assessing Officer's additions deleted.

The appeal was partly allowed by the Tribunal on 26th September 2012. The Tribunal held that invoking sections 14A/8D for disallowing interest and ... - Issues involved: Appeal against CIT(A) order regarding disallowance u/s.14A and taxability of interest received.Issue 1: Disallowance u/s.14A - Rs. 97,82,691The appellant contested the disallowance u/s.14A, arguing that no disallowance was warranted as taxable interest income had already been offered to tax. The CIT(A) was criticized for not acknowledging the direct nexus between taxable interest income and expenses. The appellant also challenged the reliance on irrelevant decisions. The disallowance of Rs. 4,21,903 was deemed unwarranted as no additional efforts were incurred for managing investments. The addition u/s.14A was deemed against natural law and equity.Issue 2: Interest Received Not Chargeable to Tax - Rs. 95,43,091The appellant disputed the taxability of interest received from an AOP, contending that it was already taxed at the AOP level and should not be taxed again in the hands of members. Ground 2 was withdrawn during the hearing, leaving only the first ground for consideration.Judgment:The Tribunal found that invoking 14A/8D for disallowing interest and administrative expenses was incorrect. The Profit & Loss A/c showed the income and expenditure details, with the appellant offering interest income and claiming interest paid under 'other sources'. The Tribunal disagreed with the disallowance, noting the smallness of expenditure and lack of application of mind by the authorities. Section 14A cannot be invoked arbitrarily, and Rule 8D cannot be applied without satisfaction being recorded. The additions made by the Assessing Officer were deleted, and a partial disallowance of 5% of exempt income was allowed. The appeal was partly allowed on 26th September 2012.