The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), while granting relief to Aditya Birla Nuvo group, held that the investment that had yielded the exempt income shall be considered for the purpose of working out the disallowances under rule 8D(2) of the Income Tax Rules, 1962.
The order has been recalled for adjudicating additional grounds of appeal with regard to the disallowance of interest under Section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(ii).
Originally, the assessee has received a dividend income of Rs.16,81,44,106/- and has made suomoto disallowance under Section 14A of the Income Tax Act of Rs.83,04,00,000/-.
The Assessing Officer had made further disallowance under Rule 8D(2)(iii) of Rs.22.46 Crores and after giving the benefit of the disallowance of Rs.3.02 Crores offered by the assessee under Rule 8D(2)(iii), had finally disallowed of Rs.19.44 Crores under Rule 8D(2) (iii).
It was stated that the assessee had sufficient interest-free funds for the purpose of making investment and therefore, no disallowance should be made. This issue was taken in A.Y.2010-11 wherein the Tribunal has remanded back this issue to examine if the assessee had surplus interest-free funds far exceeding the investment made which has yielded exempt income, then no disallowance under Rule 8D(2) should be made.
The Two-member bench comprising of Amit Shukla (Judicial member) and Amarjit Singh (Accountant member) has remanded back to the file of Assessing Officer to decide the issue afresh even though the assessee might have suomoto offered disallowance which now has been claimed that no disallowance should be made in view of the decision of the Supreme Court in the case of South Indian Bank Ltd reported in 438 ITR 1 (SC), wherein Supreme Court has held that assessee has surplus funds and no disallowance of interest can be made.
Thus, the appeal of the assessee was allowed.
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