PCIT Vs Morgan Stanley India Capital Pvt. Ltd. (Bombay High Court)
Bombay High Court Rejects Section 14A Disallowance Because Investments Were Made From Own Funds; Bombay HC Says Mixed Funds Cannot Automatically Trigger Rule 8D Interest Disallowance; Section 14A Addition Deleted Because Loans Were Taken After Investments Were Made: Bombay HC; Bombay High Court Upholds ITAT Order Deleting Rule 8D and Section 40(a)(ia) Additions.
The Bombay High Court heard an appeal filed by the Revenue challenging the order dated 11.10.2017 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2009-10. The Revenue raised three substantial questions of law relating to disallowance under Section 14A read with Rule 8D(2)(ii), deletion of disallowance under Section 40(a)(ia), and applicability of the Supreme Court decision in Avon Cycles Ltd. regarding mixed funds.
The assessee had filed its return declaring nil income. During scrutiny assessment under Section 143(3), the Assessing Officer assessed income at Rs. 2.60 crore by making additions and disallowances. The Assessing Officer disallowed Rs.16.45 lakh under Section 14A read with Rule 8D, including disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii). The Assessing Officer also disallowed expenses of approximately Rs.17.64 crore under Section 40(a)(ia) on the ground that tax had not been deducted at source on certain payments.
