2018 (7) TMI 2272 - AT - Income Tax

Revenue's Appeal Dismissed on Interest Disallowance; Assessee's Challenge Rejected; Section 115JB Remanded for Assessment

The Revenue's appeal challenging the deletion of interest expenditure disallowance under Section 14A was dismissed. The assessee's appeal contesting the ... Disallowance u/s 14A r.w.r. 8D - 'interest' paid on term loans is not attributable to any income or receipt laid down in Rule 8D(ii) - CIT-A deleted the disallowance - HELD THAT:- As it is beyond doubt that the own fund of the assessee exceeds the investment as discussed above. Therefore, given above, we conclude that there is no question of making the disallowance on account of interest expenses under Rule 8D (2)(ii) in the given facts and circumstances. Thus the ground of appeal of the Revenue is dismissed. Disallowance of expenditure in relation to dividend income - There was investment in mutual funds which has been sold during the year. Similarly, the investment has been made by the assessee in the mutual fund. Therefore, the plea of the assessee that it has not spent any time and energy on such investment does not appear to be correct. It is because the top management is certainly involved in the process of purchase and sale of investment.Therefore, we hold that the AO has rightly invoked the provision of Rule 8D for making the disallowance of expenditure in relation to dividend income.Thus, we are of the view that the disallowances made by the AO and subsequently confirmed by the Ld. CIT(A) are as per Rule 8D(2)(iii) of Income Tax Rule. Disallowance u/s 14A determining the profit u/s.115JB - assessee before the ld. CIT(A) submitted that the disallowances made under the provisions of Section 14A of the Act could not be applied while determining the profit u/s 115JB - HELD THAT:- We hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of CIT Vs. Jayshree Tea Industries Ltd. [2014 (11) TMI 1169 - CALCUTTA HIGH COURT] - AO needs to work out the disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit & loss account as mandated under the provisions of law. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication by law and in the light of above discussion. Thus this ground of CO the assessee is allowed for statistical purposes. Issues Involved:1. Deletion of disallowance of interest expenditure under Section 14A read with Rule 8D(ii).2. Confirmation of disallowance of administrative expenses under Section 14A read with Rule 8D(iii).3. Addition to book profit under Section 115JB on account of disallowance under Section 14A.4. Levy of interest under Sections 234B, 234C, and 234D.Detailed Analysis:1. Deletion of Disallowance of Interest Expenditure (Section 14A read with Rule 8D(ii)):The Revenue challenged the deletion of Rs. 39,29,249/- disallowed by the AO under Section 14A read with Rule 8D(ii). The assessee argued that its own funds exceeded the investments, negating the need for disallowance. The CIT(A) agreed, noting that the interest was paid on term loans for project purposes, not for earning exempt income. The Tribunal upheld this view, citing the Gujarat High Court's ruling in UTI Bank Ltd., where no disallowance is warranted if interest-free funds exceed investments.2. Confirmation of Disallowance of Administrative Expenses (Section 14A read with Rule 8D(iii)):The assessee contested the confirmation of Rs. 8,00,154/- disallowed for administrative expenses. The AO argued that strategic decisions by top management involved expenses. The CIT(A) confirmed the disallowance, referencing a previous year's decision. The Tribunal supported this, noting that the assessee's financial statements showed active management of investments, implying incurred administrative expenses. The Tribunal dismissed the assessee's reliance on Sintex Industries Ltd. and Gulshan Investment Co. Ltd., finding them inapplicable.3. Addition to Book Profit under Section 115JB:The assessee challenged the addition of Rs. 47,29,403/- to book profit under Section 115JB, arguing that disallowances under Section 14A should not affect MAT calculations. The CIT(A) dismissed this, citing various precedents that Section 14A disallowances should be added back under Section 115JB. However, the Tribunal referred to the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowances under Section 14A should not affect MAT calculations. The Tribunal remanded the issue to the AO to determine disallowances independently under clause (f) to Explanation-1 of Section 115JB, following the Calcutta High Court's guidance in CIT vs. Jayshree Tea Industries Ltd.4. Levy of Interest under Sections 234B, 234C, and 234D:The assessee also raised issues regarding the levy of interest under Sections 234B, 234C, and 234D, which the CIT(A) did not entertain, considering the interest mandatory. The Tribunal did not provide a separate detailed analysis for this issue in the provided text.Conclusion:- The Revenue's appeal regarding the deletion of interest expenditure disallowance was dismissed.- The assessee's appeal regarding administrative expenses disallowance was dismissed.- The issue of addition to book profit under Section 115JB was remanded to the AO for fresh adjudication.- The Tribunal's order was pronounced in open court on 12/07/2018.