2024 (12) TMI 196 - AT - Income Tax

Section 14A disallowance cannot exceed total expenditure claimed for investments in subsidiaries and mutual funds

DSP HMK Holdings Pvt. Ltd. Versus Dy. CIT- Circle 2 (1) (2), Mumbai

The ITAT Mumbai held that disallowance under section 14A read with Rule 8D regarding investments in subsidiaries, joint ventures, associates, equity ... Disallowance u/s 14A r.w.r. 8D - investments made by the assessee in its subsidiaries, joint venture investments, investments in associates, other equity shares and mutual funds - HELD THAT:- Considering the observation of coordinate bench of this Tribunal for the proceedings years in assessee’s own case, as well as the observations of Hon'ble High Court in assessee’s own case [2019 (6) TMI 440 - BOMBAY HIGH COURT], we do not find any reason to uphold the disallowance computed by the Ld.AO. We also note that in the present facts the total expenditure claimed by the assessee was Rs. 11,18,85,962/-, out of which the assessee “suo-moto” disallowed Rs. 10,70,71,997/- that includes Rs. 4,53,034/- as disallowance u/s. 14A r.w.r.8D of the Act. We note that the disallowance in any manner cannot exceed the total expenditure claimed by the assessee. There is nothing contrary brought on record by revenue regarding the total expenditure, to deviate with the observations and the view taken by coordinate bench of this Tribunal as well as Hon'ble High Court in assessee’s own case. Issues Involved:1. Disallowance under Section 14A read with Rule 8D of the Income Tax Act.2. Application of Rule 8D to Section 115JB of the Income Tax Act.3. Consideration of precedents in the assessee's own case in previous assessment years.Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The primary issue in this appeal was the disallowance of expenses under Section 14A of the Income Tax Act, which pertains to expenditure incurred in relation to income not includable in total income. The Assessing Officer (AO) applied Rule 8D to compute a disallowance of Rs. 9,79,36,390/-, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that it had already made a reasonable disallowance of Rs. 4,53,034/- on a proportionate basis, which should have been accepted, citing precedents in its own case for earlier assessment years. The Tribunal observed that the AO's disallowance was excessive and not in line with the precedents set by the Tribunal and the High Court in the assessee's own case for previous years. The Tribunal noted that the disallowance cannot exceed the total expenditure claimed by the assessee, which was Rs. 11,18,85,962/-, out of which Rs. 10,70,71,997/- had already been disallowed by the assessee itself. The Tribunal decided to delete the disallowance made by the AO, thereby allowing the assessee's appeal.2. Application of Rule 8D to Section 115JB:The assessee contended that Rule 8D, which pertains to the calculation of disallowance under Section 14A, should not be applied to Section 115JB, which deals with the computation of book profits for the purposes of Minimum Alternate Tax (MAT). The CIT(A) had upheld the AO's action of applying Rule 8D to Section 115JB. The Tribunal, however, did not find any justification for this application, as Rule 8D is specifically designed for Section 14A and not for Section 115JB. Consequently, the Tribunal agreed with the assessee's argument on this point.3. Consideration of Precedents:The Tribunal extensively considered the precedents in the assessee's own case for the assessment years 2008-09 to 2012-13, where similar disallowance issues under Section 14A were addressed. In those years, both the Tribunal and the High Court had accepted the assessee's method of disallowance, which was based on a reasonable allocation of expenses. The Tribunal emphasized the importance of consistency in judicial decisions and noted that there was no factual change in the current assessment year that would warrant a deviation from the earlier rulings. The Tribunal's decision to allow the appeal was heavily influenced by these precedents, highlighting the principle of consistency in tax adjudication.Conclusion:The Tribunal allowed the appeal filed by the assessee, deleting the additional disallowance made by the AO under Section 14A read with Rule 8D and rejecting the application of Rule 8D to Section 115JB. The decision was based on the principle of consistency with previous rulings in the assessee's own case and the recognition that disallowance cannot exceed the total expenditure claimed.