Case Law Details
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.
Nevertheless, the Tribunal granted a crucial concession concerning the adjustment under Section 115JB. Referencing the authoritative decision of the Special Bench of the Tribunal in Vireet Investments Pvt. Ltd. (82 taxmann.com 415), the ITAT ruled that the disallowance under Section 14A should not be factored into the computation of ‘Book Profits’ for MAT. Consequently, the AO has been directed to re-compute the assessee’s income, resulting in the appeal being partly allowed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of an order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana [CIT(A)] dated 19-04-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 02-02-2021. The sole grievance of the assessee is confirmation of disallowance u/s 14A for Rs.79.21 Lacs. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
2. The assessee received exempt dividend income of Rs.863.10 Lacs on equity investment made in an entity M/s Fastway Transmissions Pvt. Ltd. (FTPL). However, the assessee did not offer any disallowance u/s 14A on the plea that no expense was incurred to earn the dividend income. However, rejecting the same, Ld. AO computed indirect expense disallowance u/r 8D(2)(ii) @1% of monthly average of opening and closing investments which resulted into disallowance u/s 14A for Rs.79.21 Lacs. The same was added back while computing income under normal provisions as well as while computing ‘Book Profits’ for the purpose of MAT u/s 115JB. The assessee has ultimately paid taxes u/s 115JB. The Ld. CIT(A) confirmed the action of Ld. AO against which the assessee is in further appeal before us
3. The perusal of assessee’s financial statements as placed on record would show that there is movement in trade investment portfolio of the assessee during the year. The opening investments are Rs.80.56 Crores whereas the closing investments are Rs.86.37 Crores. There is movement in investment made by the assessee in its holding company. The assessee has incurred employment benefit expenses as well as other expenses which are of administrative in nature. The assessee has not maintained separate accounts with respect to such investment portfolio. It is unconceivable that no effort was made by the assessee to maintain its investment portfolio and therefore, in the absence of any demonstrative evidences to support this plea, it could not be accepted that the assessee did not incur any expenditure on maintaining the investment portfolio. The Rule 8D applies exactly in a situation like this. This rule provides a mechanism for computation of disallowance where the demarcation of expenses is not available. The Ld. AO has applied Rule 8D and computed the indirect expense disallowance as per this rule only. Therefore, no fault could be found in the working of Ld. AO. Consequently, the impugned disallowance made while computing income under normal provisions stand confirmed. We order so.
4. So far as the adjustment thereof u/s 115JB is concerned, the same is not justified as per the decision of Special Bench of Tribunal in Vireet Investments Pvt. Ltd. (82 com415). Therefore, this disallowance is deleted and not to be added back while computing ‘Book Profits’ u/s 115JB. The Ld. AO is directed to re-compute the income of the assessee accordingly.
5. The appeal stand partly allowed.
Order pronounced on 15-07-2025.
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