Partly allowed appeals: suo motu s.14A disallowance under Rule 8D upheld; no Rule 8D(2) disallowance for s.115JB

ITAT MUMBAI - AT partly allowed the assessee's appeals. It upheld the assessee's suo motu disallowance under s.14A r.w. Rule 8D as reasonable and directed the AO to restrict any further disallowance to that amount, noting own funds funded exempt-income investments. It held no disallowance under Rule 8D(2) when computing book profits u/s.115JB. The Tribunal confirmed the AO's disallowance for amortisation of leasehold premium and for depreciation on opening WDV, following prior tribunal findings against the assessee. It deleted the addition for unutilised CENVAT credit and directed recasting of excise accounts in favour of the assessee.

---

---

Issues Involved:
1. Disallowance of expenses related to exempt income under Section 14A of the Income Tax Act read with Rule 8D.
2. Disallowance of amortization of premium paid for leasehold land.
3. Addition of un-utilized CENVAT Credit.
4. Depreciation on the opening written down value of the block of assets.

Issue-Wise Detailed Analysis:

1. Disallowance of Expenses Related to Exempt Income under Section 14A r.w. Rule 8D:
The primary issue revolves around the disallowance of expenses related to exempt income by invoking Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules, 1962. The Revenue challenged the deletion of disallowance amounting to Rs. 29,20,10,000/- under Section 14A r.w. Rule 8D. The assessee raised multiple grounds, but only Ground Nos. 4 and 6 were argued, dismissing the rest.

The assessee-company made a suo motto disallowance of Rs. 46,85,029/- on account of expenses relatable to exempt income. The Assessing Officer (AO) was not satisfied and invoked Rule 8D(2), resulting in a disallowance of Rs. 2,966.95 Lakhs, later reduced by the CIT(A) based on certain exclusions.

The Tribunal upheld the CIT(A)'s approach, noting that investments made out of the assessee's own funds, which are interest-free, should not be disallowed. This view aligns with the Bombay High Court's decision in CIT Vs. HDFC Bank Ltd. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this issue.

Regarding administrative and other expenses under Rule 8D(2)(iii), the Tribunal accepted the assessee's suo motto disallowance of Rs. 46.85 Lakhs as reasonable. The Tribunal also directed the AO to exclude investments that generate taxable income and investments in subsidiary companies from the total investments while calculating the disallowance.

For computing book profits under Section 115JB, the Tribunal cited the Special Bench decision in ACIT Vs. Vireet Investment Pvt. Ltd., stating that provisions of Section 14A r.w. Rule 8D(2) do not apply. Thus, the AO was directed not to make any disallowance under Rule 8D(2) while computing book profits under Section 115JB.

2. Disallowance of Amortization of Premium Paid for Leasehold Land:
The assessee contested the disallowance of Rs. 1,16,125/- for amortization of the premium paid for leasehold land. The Tribunal noted that this issue was consistently decided against the assessee in earlier years (A.Ys. 2006-07 to 2010-11). Respectfully following the earlier orders, the Tribunal confirmed the disallowance and dismissed the assessee's appeal on this ground.

3. Addition of Un-utilized CENVAT Credit:
The assessee challenged the addition of un-utilized CENVAT Credit of Rs. 2,17,32,640/-, while the Revenue contested its deletion. The CIT(A) had directed the AO to recast the accounts by considering excise duty and other taxes in the opening stock, purchases, sales, and inventory. The Tribunal referred to the Bombay High Court's decision in the assessee's own case for A.Y. 2008-09, which upheld the exclusion of CENVAT credit balance from the closing stock. Respectfully following this decision, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal on this issue.

4. Depreciation on the Opening Written Down Value of the Block of Assets:
The assessee contested the CIT(A)'s decision regarding the opening written down value of the block of assets for depreciation purposes. The Tribunal noted that this issue was consistently decided against the assessee in earlier years (A.Ys. 2003-04 to 2010-11). Respectfully following the earlier decisions, the Tribunal upheld the CIT(A)'s order and dismissed the assessee's appeal on this ground.

Conclusion:
The appeal of the assessee is partly allowed, and the appeal of the Revenue is dismissed. The Tribunal's order was pronounced in the open court on 05.07.2019.

---