Sky AMA Infra Private Limited Vs DCIT (ITAT Chandigarh)
ITAT Chandigarh has issued a partial relief to Sky AMA Infra Private Limited for Assessment Year 2018-19, addressing a significant disallowance of Rs. 79.21 Lacs under Section 14A of the Income Tax Act. The case stemmed from the assessee’s receipt of Rs. 863.10 Lacs in exempt dividend income, primarily from an investment in M/s Fastway Transmissions Pvt. Ltd. Sky AMA Infra argued that no expenses were incurred in earning this income, thereby rendering a disallowance unwarranted.
However, the Assessing Officer (AO) contested this position. Citing the absence of specific expense demarcation, the AO applied Rule 8D(2)(ii), which prescribes a method for computing disallowance in such scenarios. This rule led to a 1% disallowance on the monthly average of the assessee’s opening and closing investments, culminating in the Rs. 79.21 Lacs addition. This amount was subsequently included in both the normal income computation and the ‘Book Profits’ for Minimum Alternate Tax (MAT) under Section 115JB. The Commissioner of Income Tax (Appeals) later affirmed the AO’s initial findings.
During its review, the Income Tax Appellate Tribunal (ITAT) Chandigarh upheld the disallowance under Section 14A for the purpose of normal income assessment. The Tribunal’s examination of the financial statements revealed notable fluctuations in the assessee’s trade investment portfolio, which grew from Rs. 80.56 Crores to Rs. 86.37 Crores. Furthermore, the company had incurred various employment benefit and administrative expenses without maintaining separate accounts for investment management. The ITAT concluded it was “unconceivable” that no expenditure was made to maintain such a substantial portfolio, validating the AO’s application of Rule 8D.
