2016 (12) TMI 1701 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D(2)(iii) - expenditure related to exempt income - Held that - The appeal under consideration relates to the AY 2008-09 and therefore the applicability of the Rule 8D of the Rule is undisputed. However it is a settled legal proposition at our level that the average investment desires exclusion of the non-dividend yielding investments.Therefore in our opinion the assessee is entitled to relief on this argument. Accordingly the relevant grounds raised by the assessee are required to be allowed in principle. We order accordingly and direct the AO to re-calculate the disallowance under Rule 8D(2)(iii) of the Rules. Thus grounds raised by the assessee are allowed. Disallowance u/s 8D(2)(ii) of the Rules - Held that - As in HDFC Bank Limited vs. DCIT (2016 (3) TMI 755 - BOMBAY HIGH COURT) and mentioned that the assessee is having excess interest free funds in such case no disallowance is called for under clause (ii) of Rule 8D(2) of the Rules. We agree with the said decision of the CIT (A) on this issue and therefore the conclusions drawn by the CIT (A) are upheld. Further Ld Counsel for the assessee submitted that for computing the average investment the investment in stock-in-trade should excluded for the purpose of quantifying the disallowance which are required to be made under clauses (ii) and (iii) of Rule 8D(2) of the Rules. In this regard Ld Counsel for the assessee relied on the judgment of the CIT vs. India Advantage Securities Ltd 2015 (6) TMI 140 - BOMBAY HIGH COURT . After hearing both the parties we find the order of the CIT (A) on this issue is fair and reasonable Allowability of the provision of mark-to-market loss confirmed Disallowance u/s 14A read with Rule 8D(2) - Held that - No disallowance under clause (ii) is needed if the own funds are more than the investment. Considering the same we agree with the conclusions drawn by the CIT (A) on this issue. Similarly referring to the relief granted by the CIT (A) in excluding the investments in stock-in-trade for the purpose of disallowance under Rule 8D(2)(ii) and (iii) of the Rules after hearing Representatives of both the parties we are of the opinion the said conclusions drawn by the CIT (A) are fair and reasonable and it does not call for any interference. Further it is relevant to mention that while calculating the average investments only the dividend yielded investments should alone be considered for quantifying the disallowance under clause (iii) of Rule 8D(2) of the Rules. In our opinion on this issue also the conclusions drawn by the CIT (A) are sustainable.

Summary

Issues involved:
1. Disallowance u/s 14A read with Rule 8D(2)(iii) of the Income Tax Rules 1962.
2. Allowability of provision of mark-to-market loss.
3. Disallowance u/s 8D(2)(ii) of the Rules.
4. Common issues across multiple appeals.

Issue 1: Disallowance u/s 14A read with Rule 8D(2)(iii) of the Income Tax Rules 1962:
- The appeals under consideration involved interconnected issues for assessment years 2008-2009, 2009-10, and 2010-2011. The appeals were clubbed, heard together, and disposed of in a consolidated order.
- In the appeal of the assessee for the AY 2008-09, the issue was regarding disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules. The assessee argued that the disallowance should only apply to dividend-yielding investments, not the entire average investment.
- The Tribunal found that excluding non-dividend yielding investments from the average investment was necessary, citing legal precedents. The assessee's arguments were accepted, and the AO was directed to re-calculate the disallowance under Rule 8D(2)(iii) of the Rules.
- In subsequent appeals for AY 2009-10 and 2010-11, similar issues were raised, and the Tribunal upheld the decisions of the CIT (A) in granting relief to the assessee based on legal judgments. The Tribunal dismissed the Revenue's appeals on these grounds.

Issue 2: Allowability of provision of mark-to-market loss:
- The Revenue raised concerns about the allowability of mark-to-market loss provision. The CIT (A) had granted relief based on legal precedents, which the Revenue contested.
- After considering submissions, the Tribunal found the CIT (A)'s decisions fair and reasonable, upholding the relief granted to the assessee. Consequently, the Revenue's appeals on this issue were dismissed across various assessment years.

Issue 3: Disallowance u/s 8D(2)(ii) of the Rules:
- The Revenue challenged disallowances under Rule 8D(2)(ii) of the Rules in various appeals. The Tribunal consistently upheld the decisions of the CIT (A) in granting relief to the assessee based on legal judgments.
- The Tribunal found the CIT (A)'s conclusions fair and reasonable, leading to the dismissal of the Revenue's appeals on these grounds.

Issue 4: Common issues across multiple appeals:
- Several cross-appeals were filed against the CIT (A)'s orders, addressing similar issues related to disallowances and mark-to-market losses.
- The Tribunal's decisions in one appeal often applied to others with identical issues, leading to consistent outcomes in favor of the assessee and the dismissal of the Revenue's appeals.
- Ultimately, all the assessee's appeals were allowed, and the Revenue's appeals were dismissed across the board.

This detailed analysis showcases how the Tribunal addressed each issue raised in the appeals, providing a comprehensive overview of the legal judgments and decisions rendered in the cases.