2016 (3) TMI 1404 - AT - Income Tax

Tribunal Upholds CIT(A) Order on Disallowance; Revenue Appeal Dismissed

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that restricted the disallowance under Section 14A to Rs. 19,80,509/-. The ... Disallowance u/s 14A - CIT(A) restricted the disallowance - HELD THAT:- We have also noted that in the recent judgment of Hon’ble High Court of Bombay in the case of HDFC Bank Ltd.[2016 (3) TMI 755 - BOMBAY HIGH COURT] has approved the proposition that no disallowance of expenditure can be made u/s 14A of the Act with respect to the shares held by tax payers as stock-in-trade whereby the decision of the Mumbai Tribunal in India Advantage Securities Limited . [2012 (11) TMI 458 - ITAT, MUMBAI] was confirmed by Hon’ble Bombay High Court [2015 (6) TMI 140 - BOMBAY HIGH COURT] whereby Hon’ble Bombay High Court held that no substantial question of law arise from the decision of Mumbai Tribunal in the case of India Advantage Securities Private Limited. Respectfully following the above binding judicial precedents of Hon’ble Bombay High Court in India Advantage Securities Private Limited and HDFC Bank Limited(supra) and decision of Hon’ble Karnataka High Court in the case of CCI Limited(supra), we dismiss the appeal filed by the Revenue. Issues Involved:1. Deletion of disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961.2. Applicability of Rule 8D of the Income Tax Rules, 1962 for disallowance under Section 14A.3. Consideration of judicial precedents and satisfaction of AO regarding the correctness of the assessee's claim.Issue-wise Detailed Analysis:1. Deletion of Disallowance under Section 14A:The Revenue contested the deletion of disallowance made by the AO under Section 14A by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO had disallowed Rs. 57,53,785/- by applying Rule 8D(2)(ii) and (iii) of the Income Tax Rules, 1962. The assessee argued that they had already made a suo-motu disallowance of Rs. 19,80,509/- in their return of income and maintained separate books of accounts for business and personal assets. The CIT(A) agreed with the assessee, noting that the AO did not record any dissatisfaction with the correctness of the assessee's claim before applying Rule 8D, which is a prerequisite.2. Applicability of Rule 8D of Income Tax Rules, 1962:The CIT(A) held that the AO must record satisfaction to show that expenditure has been incurred for earning tax-free income or how the assessee’s claim of apportionment is incorrect before invoking Rule 8D. The AO's failure to do so invalidated the application of Rule 8D. The CIT(A) also observed that the assessee maintained separate books for personal investments and trading stock of shares, with no administrative expenses required for personal investments. The CIT(A) concluded that no disallowance of interest under Section 14A read with Rule 8D(2)(ii) could be made for the assessment year 2009-10.3. Consideration of Judicial Precedents and AO's Satisfaction:The CIT(A) and the Tribunal relied on several judicial precedents, including decisions from the Hon'ble Karnataka High Court in the case of CCI Ltd. and the Hon'ble Kerala High Court in the case of Leena Ramachandran, which held that disallowance under Section 14A in respect of dividend received on shares held as stock-in-trade cannot be made. The Tribunal also noted that the Mumbai Tribunal in the assessee's own case for the assessment year 2008-09 had allowed the appeal of the assessee, deleting the disallowance upheld by the CIT(A). The Tribunal further referenced the recent judgment of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd., which confirmed that no disallowance of expenditure could be made under Section 14A with respect to shares held as stock-in-trade.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that restricted the disallowance under Section 14A to Rs. 19,80,509/-. The Tribunal emphasized the necessity of the AO recording dissatisfaction with the assessee's claim before applying Rule 8D and acknowledged the binding judicial precedents that supported the assessee's position. The appeal filed by the Revenue in ITA No. 915/Mum/2013 for the assessment year 2009-10 was dismissed.Order Pronounced:The order was pronounced in the open court on 16th March, 2016.