Disallowance under Rule 8D(2) can be made on investments which had actually yielded exempt income

Mahindra & Mahindra Limited Corporation Taxation Vs ACIT (ITAT Mumbai)

Conclusion: The ITAT directed the ld. AO directed to consider only those investments which had actually yielded exempt income during the year while working out the disallowance under third limb of Rule 8D(2) of the Rules.

Facts: Cross appeals were filed by the assessee and the revenue as against the final assessement order dated 30/01/2015 passed by the Assessing Officer pursuant to the direction of the Ld. Dispute Resolution Panel (DRP) under section 144C (5) of the income tax Act, 1961 pertaining to Assessment year 2010-11.

The brief facts are that the assessee company is engaged in the business of manufacturing and sale of on-road automobiles, agricultural tractor and implements, engine parts and accessories of motor vehicle, rendering services, property development activity, financing and investment and transport solutions etc. The assessee filed its return of income on 30/09/2010 declaring total income of Rs. 19,13,56,45,771/-and had revised its return of income on 29/03/2012 declaring total income of Rs. 18,99,47,48,506/-. The assessee’s case was selected for scrutiny and draft assessment order under section 143(3) r.w.s.144C (1) of the income tax Act 1961 dated 31/03/2014 was proposed to assess the income at Rs. 25, 07, 36, 09, 270/-. The assessee filed its objection before the DRP-1, Mumbai and was subsequently transferred to DRP-IV, Mumbai. It was observed that the assessee had entered into international transactions including supply of medical and spares, rendering of services, provisions of loans and corporate guarantee on investment in equity shares with its AEs. Subsequent to this, assessee’s case was transferred to the TPO who had made an adjustment of Rs. 31, 74, 04, 647/- and the AO had also proposed various other additions such as, on premium payable on FCCBs, provision for warranty, disallowance under section 14A, addition under section 40(a)(ia), weighted deduction under section 35 (2AB), dealer incentive and service coupon under section 40(a)(ia), disallowance under section 80IC and octroi incentive thereby proposing to assess the income at Rs. 25,07, 36,09,270/-. Aggrieved by the final assessment order both the assessee and the revenue were in appeal before ITAT.

Some of the main Grounds have been analysed below

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