RSWM Ltd, a yarn manufacturing company based in Bhilwara, faced disallowances under Section 14A of the Income Tax Act, assessed by DCIT Central Circle-31, New Delhi for the AY 2011-12. The case, marked by ITA Nos. 142, 143, and 144/Del/2021, was brought before the Income Tax Appellate Tribunal Delhi Bench ‘H’.
The appeals arose from separate orders of the Commissioner of Income-tax Appeals-30, New Delhi for the AYs 2011-12, 2012-13, and 2013-14, with a delay in filing due to COVID-19 restrictions. The tribunal condoned the delay and admitted the appeals for adjudication.
The main issue was the disallowance of expenditure related to exempt income under Section 14A, read with Rule 8D. The Assessing Officer had disallowed significant expenditures for AY 2011-12 and 2012-13, which were later contested. The tribunal, after reviewing the arguments, directed the deletion of the disallowance related to interest expenditure, citing sufficient interest-free funds available to the assessee.
This case highlights the application of Rule 8D(2)(ii) and the considerations for administrative expenditures under Rule 8D(2)(iii), as the tribunal set a precedent on handling cases with prior year investments and sufficient reserves. The decision underscores the importance of accurate documentation and timely filing, even under extenuating circumstances like a pandemic.
The ITA Nos. 142 and 143 were partly allowed, and ITA No. 144 was dismissed as not pressed. This ruling serves as a vital reference for cases involving Section 14A disallowances and provides clarity on the application of rules concerning investments yielding exempt income.
The final order was pronounced in the open court on July 3, 2023, by Shri Saktijit Dey, Vice-President and Shri Girish Agrawal, Accountant Member.
Analysis of Disallowance under Section 14A in RSWM Ltd vs DCIT for AY 2011-12
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