×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The above two cross appeals by the assessee and revenue are preferred against the order of the Commissioner of Income Tax [Appeals] - 28, New Delhi dated 12.03.2009 pertaining to assessment year 2006-07.
2. The solitary grievance of the assessee is that the CIT(A) erred in upholding the disallowance of Rs 1 97 crores on account of Administrative and Personnel expenses determined by the Assessing Officer on notional basis, by applying provisions of section 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'. r.w.r. 8D of the Rules, 1962.
3. The solitary grievance of the Revenue is that the CIT(A) erred in deleting the addition made on account of disallowance of interest u/s 14A of the Act to the extent of Rs. 7.30 crores.
4. Since the underlying facts in issues in both these appeals are common and were heard together, they are being disposed off by this common order for the sake of convenience and brevity.
5. The representatives of both the sides were heard at length and the case records carefully perused.
6. Facts on record reveal that the appellant company was mainly involved in the business of non-banking finances. During the year under consideration, the appellant company has shown income from dividends amounting to Rs. 86.88 crores and claimed it to be exempt u/s 10(34) of the Act. The assessee has suo moto allocated expenses for earning this dividend ncome to the tune of Rs. 55.59 crores u/s 14A of the Act. The assessee has furnished working of disallowance u/s 14A of the Act and as per the working, the assessee has allocated 55.37 crores on account of interest expenses and Rs. 21.89 lakhs on account of administrative expenses on estimated basis to earn dividend income.
7. The Assessing Officer was not satisfied with the working of the disallowance made by the assessee. The Assessing Officer was of the opinion that the provisions of section 14A(2) and 14A(3) of the Act squarely apply on the facts of the case. Drawing support from Rule 8D of the Rules, the Assessing Officer computed the disallowance at Rs. 62,68,08,055/-.
8. At the very outset, we have to state that Rule 8D of the Rules is applicable from A.Y 2008-09 as held by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd 402 ITR 640. The Hon'ble Supreme Court, in this decision, has observed as under:
“34) Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share and Stock Brokers P Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom.“
9. In the light of the aforementioned findings of the Hon'ble Supreme Court we will now see as to how the assessee has computed the disallowance.
10. The summary of disallowance u/s 14A of the Act can be understood from the following: