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2022 (12) TMI 447 - AT - Income TaxDisallowance u/s 14A - assessee earned exempt income in the form of dividend income and share in the profit of the partnership firm - AO disallowed proportionate interest on account of interest expenses and on account of administrative cost being 0.5% of average value of investment - HELD THAT:- Since the assessee is having substantial interest free funds in the form of its own share capital available with it, accordingly, there is no reason for disallowance on account of interest expenditure incurred for earning exempt income. In the case of Gujarat Narmada Valley Fertilizers Co. Ltd [2014 (3) TMI 847 - GUJARAT HIGH COURT] held that where assessee-company received dividend on UTI and shares and investment in same was made in earlier years and interest free funds available with assessee were much larger as compared to investment, disallowance of assessee's claim for interest expenditure by applying section 14A was incorrect. In case of Gujarat Fluoro chemicals Ltd. [2020 (10) TMI 252 - GUJARAT HIGH COURT] again reiterated that where interest free funds available with assessee were far more than gross investment, it could safely be harboured that interest bearing funds was not invested by assessee and, thus, no disallowance under section 14A to be made. In view of the above, there is no reason for disallowance so far as proportionate interest expenditure is concerned. So far as administrative expenses is concerned, we observe that the assessee has itself disallowed a sum of ₹ 1.78 lakhs in its return of income, which as per the counsel is adequate to cover disallowance of administrative expenses. The Ahmedabad Tribunal in the case of Axis Bank Ltd. [2017 (3) TMI 1335 - ITAT AHMEDABAD] held that administrative expenses need to be disallowed under section 14A of the Act. The law is unanimous on the point that administrative expenses need to be disallowed as per Rule 8D.However, since in the instant facts, the assessee has suo moto disallowed a sum in its return of income while making disallowance under section 14A read with Rule 8D, no further disallowance is called for on account of administrative expenditure. Disallowance u/s 14A while computing income u/s 115 JB - The Karnataka High Court in the case of J.J. Glastronics (P.) Ltd [2022 (4) TMI 1187 - KARNATAKA HIGH COURT] held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB - As in the case of Vishal Export Overseas Ltd [2022 (8) TMI 88 - ITAT AHMEDABAD] held that disallowances made under section 14A read with rule 8D could not be applied to provision of section 115JB - ITAT in the case of Vireet Investment (P.) Ltd [2022 (8) TMI 88 - ITAT AHMEDABAD] held that computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. In view of the consistent position of law on this issue, we are hereby allowing assessee’s appeal with respect to ground number 2. Disallowance in respect of closing balance of M/s Jay Metal Industries - HELD THAT:- The matter is being set aside to the file of AO for fresh adjudication after allowing due opportunity of hearing to the assessee to produce the necessary documents in support of the reconciliation for this difference.
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