ITAT rules in favor of assessee, disallowance under Rule 8D(2)(ii) not applicable. Legal precedents cited.

The ITAT ruled in favor of the assessee, holding that the disallowance under Rule 8D(2)(ii) was not applicable as the company's own funds exceeded investments in shares, and borrowed funds were not used for acquiring shares. Citing legal precedents, the ITAT directed the deletion of the disallowance under Rule 8D(2)(ii) of the IT Rules, allowing the assessee's appeal.

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Issues Involved:
- Disallowance under Rule 8D(2)(ii) read with Section 14A of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue of Disallowance under Rule 8D(2)(ii):
- The appeal filed by the assessee pertained to the assessment year 2013-14 and challenged the order passed by the Commissioner of Income Tax (Appeal)-2, Kolkata. The Assessing Officer had made disallowances under Section 14A read with Rule 8D of the Act. The grounds of appeal raised by the assessee primarily focused on the disallowance under Rule 8D(2)(ii) and the quantification of disallowance under the same rule.

2. Facts and Decision of CIT(A):
- The assessee company engaged in various business activities and filed its return of income declaring a loss. The CIT(A) allowed the appeal for statistical purposes based on the submissions made by the assessee. The CIT(A) considered that the interest expenses were directly attributable to business activities and not to investments, and hence, disallowance under Rule 8D(2)(ii) was not justified.

3. Arguments Before ITAT and Decision:
- The assessee appealed against the CIT(A)'s order, arguing that the disallowance under Rule 8D(2)(ii) was not applicable as the company's net owned funds were substantially higher than the investments in shares. The ITAT examined the balance sheet of the company and noted that the own funds exceeded the investments in shares. Relying on legal precedents, the ITAT held that since borrowed funds were not used for acquiring shares, no part of the interest paid was disallowable under Rule 8D(2)(ii).

4. Legal Precedents and Conclusion:
- The ITAT referred to judgments of the Calcutta High Court and held that the disallowance under Rule 8D(2)(ii) was not attracted in the assessee's case. Therefore, the ITAT directed the Assessing Officer to delete the disallowance under Rule 8D(2)(ii) of the IT Rules. Consequently, the appeal of the assessee was allowed, and the order was pronounced on 31.12.2019.

This detailed analysis outlines the assessment, arguments, and legal precedents considered by the ITAT in deciding the issue of disallowance under Rule 8D(2)(ii) read with Section 14A of the Income Tax Act, 1961 in the mentioned judgment.

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