2021 (7) TMI 719 - AT - Income Tax

Revenue's Disallowance Challenge Upheld; Interest Allocation Dismissed

ACIT, Central Circle-3 New Delhi Versus Bhushan Energy Ltd. And Vice - Versa

The Revenue challenged the CIT(A)'s orders for disallowance u/s. 14A for assessment years 2012-13, 2013-14, and 2014-15. The CIT(A) ruled in favor of the ... Disallowance u/s 14A r.w.r.8D - HELD THAT:- For A.Y. 2012-12 addition u/r. 8D(2)(ii) detailed explanation being given in the foot notes according to which these loans are for various phases of power projects at Orissa; that such interest expenses is not allocable to the exempt income; and that there is no nexus between the interest paid and claimed as expenditure and the exempt income and therefore no disallowance u/r. 8D(2)(ii) of the Rules is called for. In respect of assessment years 2013-14 and 2014-15 as per detailed explanation given in the foot notes of the audited accounts these loans are for various phases of power projects at Orissa; that the interest expenses is not allocable to the exempt income; and that there is no nexus between the interest paid and claimed as expenditure and the exempt income and therefore no disallowance u/r. 8D(2)(ii) of the Rules is called for. While applying the law laid down by Hon'ble jurisdictional High Court in the case of CIT vs. Indian Sugar Exim Corporation Ltd [2012 (3) TMI 100 - DELHI HIGH COURT], CIT vs. Taikisha Engineering India Ltd. . [2014 (12) TMI 482 - DELHI HIGH COURT] and CIT vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] CIT(A) directed the deletion of interest component u/r. 8D(2)(ii) of the Rules for all these three years. No illegality or irregularity in the findings of the ld. CIT(A) in deleting the interest component u/r. 8D(2)(ii) of the Rules. Though the CIT(A) confirmed the addition of disallowance under rule 8D(2)(iii), the assessee had already suo moto disallowed the same and it does not require any interference. MAT computation - Direction of the ld. CIT(A) to recompute the MAT payable by assessee after excluding the disallowance u/s. 14A of the Act, such a finding is fortified by the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investment (P) Ltd. [2017 (6) TMI 1124 - ITAT DELHI]. We, therefore, confirm the same and dismiss the appeals of the Revenue Issues:1. Disallowance u/s. 14A of the Income Tax Act for assessment years 2012-13, 2013-14, and 2014-15.2. Allocation of interest amount to exempt income.3. Disallowance of administrative expenses relatable to exempt income under Rule 8D(2)(iii) of the Rules.4. Recomputation of book profits u/s. 115JB of the Act.5. Challenge by Revenue against the CIT(A)'s orders.6. Disallowance under Rule 8D(2)(i) and Rule 8D(2)(ii).7. Application of legal precedents by CIT(A) in deleting interest component u/r. 8D(2)(ii).8. Recomputation of Minimum Alternate Tax (MAT) after excluding disallowance u/s. 14A of the Act.Analysis:1. The Revenue challenged the CIT(A)'s orders for A.Y. 2012-13, 2013-14, and 2014-15 regarding disallowance u/s. 14A. The assessee made suo moto disallowance, but the Assessing Officer calculated disallowance under Rule 8D significantly higher. The CIT(A) concluded that the assessee is not liable to allocate interest to exempt income but upheld the disallowance of administrative expenses under Rule 8D(2)(iii). Consequently, the appeals were allowed, and the Assessing Officer was directed to recompute the MAT payable after excluding the disallowance u/s. 14A.2. Regarding the allocation of interest amount, the CIT(A) found that the interest expenses were not allocable to exempt income. The Revenue did not dispute these findings, and the CIT(A) deleted the interest component under Rule 8D(2)(ii) based on legal precedents. The Tribunal confirmed this decision, stating that the interest expense was not linked to exempt income, thus dismissing the Revenue's appeals.3. The CIT(A) directed the deletion of the interest component under Rule 8D(2)(ii) for all three years, following legal precedents. The Tribunal upheld this decision, as the interest expenses were found not to be allocable to exempt income. The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections as withdrawn.4. The Tribunal confirmed the CIT(A)'s direction to recompute the MAT payable by the assessee after excluding the disallowance u/s. 14A, citing a Special Bench decision. Consequently, the appeals of the Revenue and the cross-objection of the assessee were dismissed.This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the decision-making process and the application of relevant legal provisions and precedents.