Appeals partly allowed on interest disallowance & Book Profits computation for AY 2013-14 and 2014-15

The Tribunal partly allowed the appeals regarding disallowance under Section 14A for Assessment Years 2013-14 and 2014-15. For AY 2013-14, the interest disallowance under Rule 8D(2)(ii) was deleted as the assessee's own funds exceeded investments. Direct expenditure was to be added back for computing Book Profits under Section 115JB, with indirect expenditure considered only for investments yielding exempt income. For AY 2014-15, the disallowance was restricted to the extent of exempt income earned by the assessee, with directions to recompute income under normal provisions and Section 115JB in line with the previous year's orders.

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Issues:
- Disallowance under Section 14A of the Income Tax Act, 1961 for Assessment Years 2013-14 and 2014-15.

Analysis:

Issue 1: Disallowance under Section 14A for AY 2013-14
- The appeal contested the disallowance made under Section 14A of the Income Tax Act, 1961 for exempted income earned, totaling Rs. 23,56,611.
- The assessee, a resident corporate entity engaged in financing and trading of fabrics, had its income determined at Rs. 113.51 Lacs under normal provisions after a disallowance of Rs. 25.10 Lacs under Section 14A.
- The assessee earned exempt dividend income of Rs. 24.10 Lacs and offered a suo-moto disallowance of Rs.0.54 Lacs under Section 14A.
- The CIT(A) directed the Assessing Officer (AO) to restrict the disallowance to Rs. 24.10 Lacs, being the exempt income earned by the assessee.
- The Tribunal held that interest disallowance under Rule 8D(2)(ii) was not warranted as the assessee's own funds exceeded investments, following precedents and case laws. Therefore, the interest disallowance was deleted.
- Direct expenditure was allowed to be added back while computing Book Profits under Section 115JB, and indirect expenditure was to be considered only for investments yielding exempt income during the year.

Issue 2: Disallowance under Section 14A for AY 2014-15
- The assessee earned exempt income of Rs. 32.7 Lacs and offered a suo-moto disallowance of Rs. 26,416. However, the AO computed a disallowance of Rs. 38.07 Lacs under Rule 8D.
- The CIT(A) directed the AO to restrict the disallowance to the extent of exempt income earned by the assessee.
- The Tribunal directed the AO to recompute the income under normal provisions and under Section 115JB in line with the orders for AY 2013-14.

Conclusion:
- Both appeals were partly allowed concerning the disallowance under Section 14A for the respective Assessment Years 2013-14 and 2014-15. The Tribunal's order was pronounced on 10th February 2020.

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