2019 (3) TMI 1060 - AT - Income Tax

Tribunal upholds deletion of disallowances and MTM losses provision, citing Section 14A and precedents.

Asst. Commissioner of Income Tax-3 (1) (2), Mumbai Versus Edelcap Securities Ltd., EC Commodity Ltd., Edelweiss Finance & Investment Ltd. And ECL Finance Ltd.

The Tribunal dismissed all revenue appeals, upholding the deletion of disallowances under Section 14A and provision for Mark to Market (MTM) losses by the ... Disallowance u/s 14A r.w.r 8D - own funds far exceeded the investment - HELD THAT:- We find that it is undisputed fact that assessee’s own funds far exceeded the investments made by the assessee, the details of which have been placed on record. Therefore, in terms of binding decision of Hon’ble Bombay High Court rendered in CIT Vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] & CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT], a presumption was to be drawn in assessee’s favor that the investments were made out of interest free funds available with the assessee unless the revenue authorities could prove the nexus of borrowed funds with the investments made by the assessee. Nothing on record suggest such nexus. Therefore, interest disallowance u/r 8D(2)(ii) could not be held to be justified additional expense disallowance - As held by ACIT Vs. Vireet Investment (P.) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] wherein it has been held that only exempt income yielding investments were to be considered to arrive at the said disallowance. Therefore, the additional expense disallowance, as computed by Ld. AO could not be sustained. Therefore, we find no infirmity in the stand of Ld. first appellate authority. Provision for Mark to Market Losses [MTM] - HELD THAT:- CIT(A) correctly deleted both the additions by relying upon its own decision in assessee’s own case for AY 2011-12. Aggregate disallowance u/s 14A read with Rule 8D which comprised-off of interest disallowance u/r 8D(2)(ii) and expense disallowance u/r 8D(2)(iii) - AY 2012-13 - HELD THAT:- The assessee’s submissions as extracted in the quantum assessment order reveal that assessee’s own funds far exceeded the investment and therefore, no interest disallowance was justified in the absence of nexus of borrowed funds with the investments. So far expenses disallowance is concerned, it is undisputed fact that no exempt income has been earned by the assessee during impugned AY and therefore, no disallowance on this account Issues Involved:1. Deletion of disallowance under Section 14A.2. Deletion of provision for Mark to Market (MTM) losses.Detailed Analysis:Issue 1: Deletion of Disallowance under Section 14ACase: ITA 6457/Mum/2017 (AY 2012-13, M/s Edelcap Securities Ltd.)During the assessment proceedings, the Assessing Officer (AO) disallowed Rs. 167.80 Lacs under Section 14A by applying Rule 8D, which included interest disallowance of Rs. 150.49 Lacs and expense disallowance of Rs. 17.30 Lacs. The assessee had already offered a suo-moto disallowance of Rs. 2.32 Lacs. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, following its own decision for AY 2011-12, which was confirmed by the Tribunal. The Tribunal upheld the CIT(A)'s decision, citing that the assessee's own funds exceeded the investments, invoking the presumption in favor of the assessee as per the Bombay High Court rulings in CIT Vs. Reliance Utilities & Power Ltd. and CIT Vs. HDFC Bank Ltd.Case: ITA 6458/Mum/2017 (AY 2012-13, M/s EC Commodities Ltd.)The AO disallowed Rs. 18.56 Lacs under Section 14A, comprising interest disallowance of Rs. 17.28 Lacs and expense disallowance of Rs. 1.28 Lacs. The CIT(A) deleted the disallowance, noting that the assessee's own funds exceeded the investments and no exempt income was earned during the year. The Tribunal confirmed this, referencing the Bombay High Court's decision in PCIT Vs. Ballarpur Industries Ltd.Case: ITA 6456/Mum/2017 (AY 2011-12, M/s Edelweiss Finance & Investment Ltd.)The AO disallowed Rs. 586.12 Lacs under Section 14A, with interest disallowance of Rs. 526.88 Lacs and expense disallowance of Rs. 59.24 Lacs. The assessee had offered a suo-moto disallowance of Rs. 7.52 Lacs. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting that the assessee's own funds exceeded the investments and the suo-moto disallowance was sufficient.Case: ITA 6459/Mum/2017 (AY 2011-12, M/s ECL Finance Ltd.)The AO disallowed Rs. 65.45 Lacs under Section 14A, with interest disallowance of Rs. 35.64 Lacs and expense disallowance of Rs. 29.80 Lacs. The assessee had offered a suo-moto disallowance of Rs. 4.63 Lacs. The CIT(A) deleted the disallowance, and the Tribunal confirmed this, noting that the assessee's own funds exceeded the investments and the suo-moto disallowance was sufficient.Case: ITA 6455/Mum/2017 (AY 2012-13, M/s ECL Finance Ltd.)The AO disallowed Rs. 395.51 Lacs under Section 14A, with interest disallowance of Rs. 253.17 Lacs and expense disallowance of Rs. 142.34 Lacs. The assessee had offered a suo-moto disallowance of Rs. 4.73 Lacs. The CIT(A) deleted the disallowance, and the Tribunal confirmed this, noting that the assessee's own funds exceeded the investments and the suo-moto disallowance was sufficient.Issue 2: Deletion of Provision for Mark to Market (MTM) LossesCase: ITA 6457/Mum/2017 (AY 2012-13, M/s Edelcap Securities Ltd.)The AO disallowed Rs. 353.28 Lacs for MTM losses, treating it as a contingent liability. The CIT(A) deleted the disallowance, referencing its own decision for AY 2011-12, which was confirmed by the Tribunal. The Tribunal upheld this, citing various precedents, including Edelweiss Capital Limited Vs. ITO and DCIT Vs. Edelweiss Securities Limited, confirming that the MTM losses were allowable.Case: ITA 6458/Mum/2017 (AY 2012-13, M/s EC Commodities Ltd.)The AO disallowed MTM losses, treating it as a contingent liability. The CIT(A) deleted the disallowance, following its own decision in the assessee’s group companies. The Tribunal confirmed this, referencing its binding decision in the assessee’s group concerns.Case: ITA 6456/Mum/2017 (AY 2011-12, M/s Edelweiss Finance & Investment Ltd.)The AO disallowed MTM losses, treating it as a contingent liability. The CIT(A) deleted the disallowance, following its decision in the assessee’s own case for AY 2011-12. The Tribunal upheld this, referencing its binding decision in the assessee’s own case and group concerns.Case: ITA 6459/Mum/2017 (AY 2011-12, M/s ECL Finance Ltd.)The AO disallowed MTM losses, treating it as a contingent liability. The CIT(A) deleted the disallowance, following its decision in the assessee’s group companies. The Tribunal confirmed this, referencing its binding decision in the assessee’s group concerns.Case: ITA 6455/Mum/2017 (AY 2012-13, M/s ECL Finance Ltd.)The AO disallowed MTM losses, treating it as a contingent liability. The CIT(A) deleted the disallowance, following its decision in the assessee’s group companies. The Tribunal confirmed this, referencing its binding decision in the assessee’s group concerns.Conclusion:All the appeals by the revenue were dismissed, with the Tribunal confirming the deletion of disallowances under Section 14A and the provision for MTM losses by the CIT(A) in all cases. The Tribunal's decisions were based on established precedents and the specific facts of each case, particularly the availability of the assessee's own funds and the treatment of MTM losses as per accounting standards.