The taxpayer adjusted the interest expenditure against the interest income earned. After such adjustment no interest expenditure remained to be disallowed. The taxpayer offered expenditure other than interest of Rs. 111,521 for disallowance under Section 14A of the Act on the estimated basis. The Kolkata Tribunal held that there was no interest expenditure remaining after adjusting the interest credited to the Profit and Loss Account. Therefore, no part of interest paid can be disallowed for earning tax free dividend. Further, expenditure other than interest had been offered for disallowance by the taxpayer under Section 14A of the Act. Therefore, no further disallowance shall be made.
INCOME TAX APPELLATE TRIBUNAL,KOLKATA
I.T.A. No.: 1277/ Kol. / 2011 – Assessment year : 2008-09
Deputy Commissioner of Income Tax
M.s. Trade Apartment Ltd.
Date of pronouncing the order : March 30th, 2012
Per Pramod Kumar:
1. By way of this appeal, the Assessing Officer has challenged correctness of learned Commissioner of Income Tax(Appeals)’s order dated 28th April, 2011, in the matter of assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09, on the following grounds :-
(1) That on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the disallowance of Rs.9,86,306/- under rule 8D(2)(ii) being a part of total disallowance u/s. 14A since he opined in the instant case that there cannot be any interest expenditure left where interest income is more than interest expenditure.
(2) That on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the disallowance of Rs.19,14,503/- under rule 8D(2)(iii) being a part of total disallowance u/s. 14A without appreciating the fact that AO had followed Rule 8D(2)(iii) in toto while making such disallowance and ld. CIT(A) could not mention the reason while deleting the disallowance in question.
2. Briefly stated, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noted that the assesee has earned tax exempt dividend income of Rs.12,44,386/- but offered only Rs.1,11,521/- for disallowance u/s. 14A on estimate basis. The Assessing Officer, however, observed that when assesese earns all its income from same establishment and composite fund of the company is utilized, expenses will have to allocate as per Rule 8D. Accordingly, out of total interest expenses debited to profit and loss account Rs.10,64,547/-, he disallowed Rs.9,86,306/- by taking into account of average investments. The proportionate expenses as per Rule 8D(2)(iii) were also computed at Rs.19,14,503/-. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) noted that there was no interest expenditure, after setting off interest income earned, and, as such, the Assessing Officer was in error in disallowing interest of Rs.9,86,306/-. The CIT(A) further noted that as entire expenditure incurred by the assessee, which was Rs.1,11,521/-, nothing further remained to be disallowed. Once entire expenses are disallowed, nothing further can be disallowed under rule 8D. The action of the Assessing Officer was thus reversed on both the counts. The Assessing Officer is aggrieved and is in appeal before us.
3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
4. As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us – upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 14A. The disallowance under section 14A can come into play only out of expenses claimed for deduction and expenses have been claimed for deduction, there cannot be any disallowance either. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).
5. In the result, the appeal is dismissed. Pronounced in the open Court today on 30th day of March, 2012.