India Infoline Finance Limited Vs ACIT (ITAT Mumbai)
The issue under consideration is whether the disallowance under 14A can be exceed the actual expenditure incurred in this regard?
ITAT states that, the assessing officer has duly rejected the assessee’s contentions and applied Rule 8D(3) and made the disallowance which has been sustained by learned CIT(appeals). However we are of the considered opinion that the issue may be considered by the assessing officer once more by taking into account the following which are also the contentions of the assessee in earlier year i.e. (i) The disallowance under 14A cannot exceed the actual expenditure incurred in this regard. (ii) The disallowance has to be considered only with respect to the investments which have yielded exempt income. (iii) The disallowance cannot exceed the exempt income earned.
Accordingly, with these observation ITAT remit the issue to the file of the Assessing Officer to reconsider the disallowance under Rule 8D(iii) afresh.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the assessee against respective order of learned CIT(appeals) pertaining to assessment years as above.
2. The common grounds of appeal read as under :-
1. On the facts and in the circumstances of the case and in law , the learned CIT(A) failed to appreciate that the working of disallowance of Rs. 15 Lacs made by the Appellant in its Income Tax Return towards disallowance u/s 14A w.r. Rule 8D is fair and reasonable considering the facts and circumstances of the case.
2. On the facts and in the circumstances of the case and in law, the assessing officer failed to record satisfaction or otherwise, with cogent reasons, for rejecting the IIFL claim that Rs. 15,00,000 lacs has been incurred in relation to income which does not form part of the total taxable income as per the provisions of the Income-tax Act, 1961.
3. On the facts and in the circumstances of the case and in law, the assessing officer failed to appreciate that the disallowance u/s 14A r.w.r.80 cannot be automatic without considering the working of disallowance made by the Appellant in the course of assessment proceedings.
4. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the assessee has minimal activities relating to exempt income and the expenses of the subsidiary companies are being borne by the subsidiary companies themselves and no substantial expenditure is required to be incurred by the assessee for making and maintaining these investments.
5. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the assessee has made investments in the subsidiary companies to retain management control of the said subsidiaries and not to earn income.
6. The Learned CIT (A) failed to appreciate that the assessee has invested short term surplus funds in liquid schemes of mutual funds. Since the investments in mutual funds were made on short term basis in liquid mutual funds, no expense has been incurred for making such investments.
7. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the disallowance on ad hoc basis of 0.5 % of average investments is uncalled for and unreasonable.
8. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that Hon’ble ITAT in the case of Garware Ropes, has held that it was incumbent on the Assessing Officer to find out that as to whether the assessee has incurred an expenditure for earning dividend income. The onus of proving that expenses has been incurred is on the Assessing Officer.
Brief facts of the case are that assessee in this case has made the suomoto disallowance of Rs. 15 lakhs on account of expenditure incurred in relationship to income exempt under section 14A of the Act. The assessing officer has noted that assessee has not submitted any basis whatsoever as to how the said Rs. 15 lakhs disallowance was arrived at. He rejected the assessee submission that assessee has sufficient interest free funds and that not much expenditure was incurred for earning the exempt income. He applied rule 8D and made the disallowance as under :-
