ITAT upheld deletion u/r 8D(2)(ii) (of Income Tax Rules, 1962) as there was no interest payment

1. Assessee was a State Government undertaking engaged in the business of developing industrial infrastructure in the state of Andhra Pradesh and Telangana. At the relevant point of time, it filed original return of income admitting taxable income of Rs. 9,70,86,580/- and filed a revised return admitting a lesser income later on. In the scrutiny assessment completed by the Assessing Officer (AO), one of the disallowance is on Section 14A (of Income Tax Act, 1961) as assessee had claimed exemption of dividend of Rs. 3,67,99,560/-. AO noticed that assessee had not disallowed any expenditure under the rules. Consequentially, he disallowed the amount after invoking Rule 8D(2) (of Income Tax Rules, 1962).

2. CIT(A) deleted the addition made under 8D(2)(ii). Thereafter, Ld. CIT(A) confirmed the disallowance of Rs. 1,55,50,703/- made u/s. 8D(2)(iii) (of Income Tax Act, 1961) 0.5% of average investments as per rule.

3. On cross appeal, the ITAT held as under:

“As far as Revenue appeal is concerned, as rightly noted by the CIT(A), there is no expenditure incurred by the assessee on interest payments. Therefore, as there is no interest payment by the assessee in its business, invoking disallowance under Rule 8D(2)(ii) (of Income Tax Rules, 1962) does not arise. The amount which was considered by the AO is pass- through amount as assessee has received interest of Rs. 28 Crores and in turn, passed on to consortium and is not an interest liability of the assessee. Even if it is to be considered as interest liability of the assessee, the same does not pertain to the exempt income at all, as it pertains to tied-up funds in another project. Therefore, AO was wrong in considering the amount as interest not directly attributable to a particular receipt. In view of that, there is no merit in Revenue's appeal and accordingly, Revenue's appeal is dismissed.

First of all, we were not sure about the factual position of the Balance Sheet on which the figures were arrived at. Ld. Counsel placed on record some information from the Balance Sheet as on 31-03-2008 to explain the provisions, but we are of the opinion that this issue requires a deeper analysis on facts. Therefore, we are unable to follow the same on facts and for reasons on law as discussed above. Since the Co-ordinate Bench at Hyderabad has analysied the provisions in its correct perspective, we are of the opinion that that the action of the CIT(A) in considering the average value of investments available in the Balance Sheet is correct and accordingly, assessee's grounds are rejected. Assessee's appeal is dismissed.”

Case Reference - M/s. Andhra Pradesh Industrial Infrastructure Corporation Ltd v Deputy Commissioner of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES "A", HYDERABAD

BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND

SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER