×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.
This appeal is preferred by the Revenue against the order passed by the ld. Commissioner of Income Tax (Appeals)-12, Kolkata dated 30.08.2016.
2. In Ground No. 1, the Revenue has challenged the action of the ld. CIT(Appeals) in holding that Rule 8D is not applicable in the case of the assessee and thereby deleting the disallowance made by the Assessing Officer under section 14A of the Act.
3. The assessee in the present case is a Company, which is engaged in the business of running Hotels and providing technical services for operating Hotels. The return of income for the year under consideration was filed by the assessee on 09.10.2010 declaring total income of Rs.5,42,98,180/-. Subsequently a revised return was filed by the assessee on 15.02.2012 declaring total income of Rs.5,43,63,946/-. During the year under consideration, the assesee-company had earned dividend income of Rs.10,88,37,814/- on the investment made in Shares and Units of Mutual Funds and the same was claimed to be exempt from tax. As noticed by the Assessing Officer, the assessee-company had disallowed only the direct expenses and indirect expenses as per Rule 8D read with Section 14A of the Act and no disallowance under Rule 8D(2)(iii) calculated at the rate of 0.5% of the average of the value of investment was made by the assessee. He accordingly worked out such disallowance on account of common administrative and managerial expenses, which the assessee might have incurred for earning exempt income as per Rule 8D(2)(iii) at Rs.82,81,539/- and made addition to the extent to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 23.03.2013.
4. The disallowance made by the Assessing Officer under section 14A read with Rule 8D(2)(ii ) was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 2.3 of his impugned order:-
“2.3. The submission of the appellant along with the supporting details/ evidences have been carefully considered and the facts of the case perused. The common issue involved these grounds of appeal is the application of Rule 8D of Income Tax Rules, 1962 ("Rules") for disallowance u/s 14A of the Income Tax Act, 1961 ("the Act"). In the return of income, the appellant treated interest and DEMAT charges are the only expenses relatable to tax free dividend income and offered Rs.10,90,01,363/- as expenditure disallowable u/s 14A of the Act. Further, during the appellate proceedings, the appellant submitted that interest income on bank deposit amounting to Rs.15,49,776/- should be netted off from the interest already offered u/s 14A of the Act in computation. The AO did not consider this submission of the appellant. In this regard, the appellant placed reliance on the decision of the jurisdictional ITAT, Kolkata in the case of DCIT Vs M/s. Trade Apartment Ltd (ITA No.1277/Kol/2011).
Now the issues are dealt herein below one by one:
1. So far as the applicability of Rule 8D is concerned, this issued has been dealt by the ITAT, Kolkata in the case of the appellant itself in ITA No.1030/Kol/2012 for AY 2008-09. The relevant portion of the ITAT order is reproduced as follows:
''''We are also of the view that the primary object of investment of assessee is for holding controlling stake in groupconcerns and not for earning of income out of that investment, In both the eventualities, no disallowance can be made u/s 14A of the Act read with Rules 8D of the Rules. Accordingly, this issue of assessee's appeal is allowed. "
Considering the decision of ITAT Kolkata as mentioned above, I hold that Rule 8D is not applicable in the case of the appellant.
2. Once it is decided that Rule 8D is not applicable, the other claim of the appellant with regard to computation of expense u/s 14A of the Act needs to be discussed. First claim of the appellant is netting off of interest earned with interest incurred. This is additional claim of the appellant made during the assessment proceedings. In earlier years, the respective CIT(A) has already held that net interest (reducing interest earned from gross int est paid) needs to be considered for the purpose of section 14A of the Act. Accordingly, I direct the AO to consider Rs.10,72,88 038/- as interest disallowable u/s 14A of the Act instead ofRs.10,88,37,814/- as interest paid.
3. The same issue arose for my consideration as whether foreign inves ment should be considered or not for the purpose of calculation of average investment as mentioned in Rule 8D of the Income tax Rules 1962. Under the identical set of facts, as held in my previous order, I agree with the appellant that the investments in foreign company should not be considered while computing the average investment for the purpose of Rule SD. The appellant has taken this ground as without prejudice. Since in the preceding paragraphs, following the tribunal’s order in the case of the appellant itself, I have hold that Rule 8D is not applicable, this ground is allowed for statistical purpose. Vide ground 15 the appellant has challenged the applicability of Rule 8D for the purpose of computation of book profit under the MAT provisions. In this regard, the appellant relied on the judgment of Jurisdictional High Court in the case of CIT -vs.- Jayshree Tea & Industries Ltd. [G.A. No. 1501 of 2014 dated 19- 11-2014] wherein it has been held that provision of Section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to Section 14A of the Act.