2024 (8) TMI 690 - AT - Income Tax

No interest expense disallowance under Rule 8D when own funds exceed investment value

360 One WAM Limited Versus ACIT, Circle-12 (2) (2), /ACIT, Circle-4 (2) (1), Mumbai

360 One WAM Limited Versus ACIT, Circle-12 (2) (2), /ACIT, Circle-4 (2) (1), Mumbai - TMI Issues:1. Challenge against addition made under section 14A and section 115JB of the Income Tax Act for multiple assessment years.2. Dispute over whether the Assessing Officer recorded dissatisfaction over the workings made by the assessee.3. Correct computation of disallowance under Rule 8D of the Income Tax Rules.Analysis:Issue 1: Challenge against addition made under section 14A and section 115JBThe appeals filed by the assessee challenged the additions made by the Assessing Officer under section 14A and section 115JB of the Income Tax Act for the assessment years 2014-15, 2016-17, 2017-18, and 2018-19. The Assessing Officer computed disallowances under these sections based on exempt income earned by the assessee and non-compliance with Rule 8D of the Income Tax Rules.Issue 2: Dissatisfaction recorded by the Assessing OfficerThe assessee contended that the Assessing Officer did not record dissatisfaction over the workings made by them, leading to a legal ground for the deletion of disallowances under section 14A. However, the Tribunal found that the Assessing Officer did refer to the quantum of investments and interest expenses, explicitly stating his dissatisfaction with the assessee's claims. The Tribunal concluded that the Assessing Officer had indeed recorded dissatisfaction, rejecting the legal contention of the assessee.Issue 3: Correct computation of disallowance under Rule 8DFor each assessment year, the Tribunal analyzed the computation of disallowances under Rule 8D. In the assessment year 2014-15, the Tribunal directed the Assessing Officer to consider only investments that yielded exempt income for computing the disallowance under Rule 8D(2)(iii). Similar directions were given for the assessment years 2016-17 and 2018-19. The Tribunal also addressed the correct computation of disallowances for book profits under section 115JB, directing the AO to exclude disallowances made under section 14A while computing book profits.Overall, the Tribunal allowed the appeal for the assessment year 2017-18 and partly allowed the other appeals, setting aside certain additions and directing the Assessing Officer to recompute disallowances in accordance with the Tribunal's directions. The order was pronounced on 9th August 2024.