2024 (6) TMI 934 - AT - Income Tax

Revenue's appeal partially allowed on Section 14A disallowance - Rule 8D(2)(iii) recomputation directed for exempt income investments

DCIT-19 (3), Maharashtra Versus Shrenik Dheerajmal Siroya

ITAT Mumbai partially allowed revenue's appeal regarding disallowance u/s 14A. Court upheld deletion of disallowance under Rule 8D(2)(ii) citing HDFC Bank ... Disallowance u/s 14A r.w.r. 8D - whether any exempt income earned or not? - expenditure incurred on earning exempt income - HELD THAT:- In the present case, it is evident from the record that no disallowance was made under Rule 8D(2)(i) of the Rules. Further, the AO made a disallowance of Rs. 66,80,562 under Rule 8D(2)(ii) of the Rules in respect of the expenditure incurred by way of interest, during the previous year, which is not directly attributable to any particular income or receipt. We find that in CIT v/s HDFC Bank Ltd., [2014 (8) TMI 119 - BOMBAY HIGH COURT] held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made of the part of interest payments. Thus we find no merit in disallowance made by the AO under section 14A read with Rule 8D(2)(ii) of the Rules. Disallowance computed u/s 14A read with Rule 8D(2)(iii) - Special Bench of the Tribunal in the case of ACIT v/s. Vireet Investment (P) Ltd. (2017 (6) TMI 1124 - ITAT DELHI) held that only those investments are to be considered for computing average value of investments, which yield exempt income during the year. Therefore, we direct the AO to recompute the disallowance under section 14A read with Rule 8D(2)(iii) of the Rules in view of the aforesaid decisions, and if the disallowance so computed by applying above said principles works out to be lower than the value of exempt income, then the disallowance under section 14A should be restricted to the lower amount so computed. Accordingly, the impugned order in respect of deletion of disallowance under section 14A read with Rule 8D(2)(ii) of the Rules is upheld. While in respect of disallowance made under section 14A read with Rule 8D(2)(iii) of the Rules, the impugned order is modified, and the AO is directed to compute the disallowance under section 14A read with Rule 8D(2)(iii) of the Rules in view of directions as rendered in the foregoing paragraph. As a result, the grounds raised by the Revenue pertaining to deletion of disallowance under section 14A of the Act are partly allowed for statistical purposes. Disallowance u/s 36(1)(iii) - assessee has advanced interest free loan on which interest was not charged by the assessee - HELD THAT:- From the financial position of the assessee, as per the consolidated capital account and balance-sheet, as noted in the foregoing paragraph, it is evident that the assessee's own funds and interest free funds are more than investments, including the investments for earning exempt income, and interest-free advances given. We find that in CIT v/s Reliance Utilities & Power Ltd.[2009 (1) TMI 4 - BOMBAY HIGH COURT] held that if funds are available with the assessee, which are sufficient to meet the investment, then presumption would arise that the investment is made out of funds so available with the assessee and, therefore, no disallowance under section 36(1)(iii) can be made - we find no infirmity in the impugned order in deleting the disallowance made u/s 36(1)(iii) - grounds raised by the Revenue pertaining to deletion of disallowance u/s 36(1)(iii) are dismissed. Issues Involved:1. Condonation of Delay2. Deletion of Disallowance u/s 14A read with Rule 8D3. Deletion of Disallowance u/s 36(1)(iii)Condonation of Delay:The Revenue's appeals for the assessment years 2012-13, 2013-14, and 2014-15 were delayed by 90, 262, and 264 days respectively. The delay was attributed to a technical glitch in the Income Tax Business Application (ITBA) portal. The Tribunal found that the reasons stated by the AO fall within the parameters for granting condonation of delay as laid down by the Hon'ble Supreme Court in the case of Collector Land Acquisition, Anantnag Vs. MST Katiji and others: 1987 SCR (2) 387. The Tribunal condoned the delay and proceeded to decide the appeals on merits.Deletion of Disallowance u/s 14A read with Rule 8D:The AO had disallowed Rs. 69,53,894 u/s 14A read with Rule 8D, which included Rs. 66,80,562 under Rule 8D(2)(ii) and Rs. 2,73,332 under Rule 8D(2)(iii). The learned CIT(A) allowed the ground raised by the assessee by following the order of its predecessor. The Tribunal upheld the deletion of disallowance under Rule 8D(2)(ii) based on precedents set by the Hon'ble Supreme Court in South Indian Bank Ltd. vs CIT, and the Hon'ble jurisdictional High Court in CIT v/s HDFC Bank Ltd. For disallowance under Rule 8D(2)(iii), the Tribunal directed the AO to recompute the disallowance in view of the decisions in Nirved Traders (P.) Ltd. v/s Dy. CIT and ACIT v/s. Vireet Investment (P) Ltd., ensuring it does not exceed the exempt income. Thus, the deletion under Rule 8D(2)(ii) was upheld, and the deletion under Rule 8D(2)(iii) was modified.Deletion of Disallowance u/s 36(1)(iii):The AO had disallowed Rs. 2,57,43,893 u/s 36(1)(iii) for interest expenditure related to interest-free loans. The learned CIT(A) deleted the disallowance by following the decision of its predecessor. The Tribunal noted that the assessee's own funds and interest-free funds were more than the investments and interest-free advances given. Citing the Hon'ble jurisdictional High Court in CIT v/s Reliance Utilities & Power Ltd., the Tribunal upheld the deletion of disallowance, stating that if sufficient funds are available, the presumption is that investments are made from those funds.Conclusion:The appeals by the Revenue for the assessment years 2012-13, 2013-14, and 2014-15 were partly allowed for statistical purposes. The Tribunal upheld the deletion of disallowance under Rule 8D(2)(ii), modified the deletion under Rule 8D(2)(iii), and upheld the deletion under section 36(1)(iii).