IDFC LIMITED(NOW KNOWN AS IDFC FIRST BANK LIMITED),CHENNAI V. CORPORATE CIRCLE 1(1) CHE, CHENNAI

MA 38/CHNY/2025

AI Insights

The case involves IDFC Limited, which sought to rectify an order concerning the application of Rule 8D in the computation of disallowances related to exempt income from dividends. The Tribunal's earlier decision had upheld the A.O.'s application of Rule 8D, which the assessee contested, arguing that their own funds were used for investments yielding exempt income, and thus no disallowance should be made. The Tribunal dismissed the MA, stating that the A.O. had recorded satisfaction regarding the jurisdictional requirement for invoking Rule 8D, and the assessee was given an opportunity to present its case during the remand proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 707146 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2025
• Other Referred Cases: CIT vs. Tamil Nadu Small Scale Industrial Development Corporation Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R. ANITHA
• Assessee Lawyers: FARROKH V. IRANI
• Keywords: Set aside; Reassessment proceedings; Earning of tax free income; Rule 8D

Judgement Text

"आयकर अपीलीय अिधकरण, ‘डी’ \u0011ा यपीठ, चे\u0016ई। N THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0011ा ियक सद\" एवं \u0019ी जगदीश, लेखा सद\" क े सम) BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER M.A No.38/Chny/2025 (Arising out of ITA No.877/Chny/2018) िनधा+रण वष+ /Assessment Year: 2010-11 IDFC Limited, (erstwhile known as Infrastructure Development Finance Company Limited), KRM Tower, 8th Floor, No.1, Harrington Road, Chetpet, Chennai – 600 031. PAN: AAACI 2663N Vs. The Dy. Commissioner of Income Tax, Company Circle-II(3), Chennai. (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/Assessee by : Shri Farrokh V. Irani, Advocate /0थ की ओर से /Revenue by : Ms. R. Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 27.06.2025 घोषणा की तारीख /Date of Pronouncement : 10.07.2025 आदेश / O R D E R PER JAGADISH, A.M : By way of this Miscellaneous Application (MA), the assessee is seeking to rectify the order passed in ITA Nos.877/Chny/2018 dated 30.09.2024. 2. The Ld. Authorized Representative (A.R) of the assessee has objected to the observation made in para 8 of the Tribunal order, where applicability of Rule 8D has been upheld as under: M.A No.38/Chny/2025 IDFC Ltd. :- 2 -: “8. We have heard the rival submissions, and perused the materials available on record. The assessee allocated direct expenses of Rs.74,98,536/- to earn exempt income from dividends of Rs.134,25,40,754/-. The assessee has contended that no interest expenditure was incurred to earn the exempt income, as its own funds were used in such investments. The Ld AR further contended that the balance sheet shows that the share capital and reserves exceeded the investment made in equity and courts have held that if own funds exceeded the investments in dividend-yielding assets, the general presumption would be that assessee’s own funds were used to make such investment. However, in this case, the assessee until AY 2006- 07 , consistently claimed , that borrowed funds were used for dividend-yielding investments, while own funds were used for assets yielding exempt income under Section 10(23G). These investments, made before AY 2006-07, continue to generate dividend income, contradicting the current claim that own funds were used. In light of such observations on relevant fact, first of all, we do not agree with the assessee that the AO did not express his satisfaction with the correctness of the claim of the assessee in respect of such expenditure in relation to income, which does not form part of the total income under that Act. Therefore, the A.O has rightly resorted to compute the disallowance applying Rule 8D of the Rules.” 3. The Ld. AR has argued that the Tribunal has not considered several relevant factual aspects demonstrated during the course of hearing, including: “ a) For AY 2003-04 to AY 2007-08, the Hon'ble Tribunal in Appellant's own case, had held that if the owned funds are greater than the tax-free income yielding investment at the time of making the investment, then no disallowance of interest expenditure was to be made under section 14A. b) While giving effect to the Hon’ble Tribunal’s order, theA.O had deleted the interest disallowance in A.Y 2007-08. c) For AY 2008-09 and 2009-10, the decision of the CIT(A) directing the AO to delete the interest disallowance if own funds were M.A No.38/Chny/2025 IDFC Ltd. :- 3 -: sufficient was upheld by the Hon'ble Tribunal. The AO has given effect to the CIT(A) orders for AY 2008-09 and AY 2009-10 wherein the AO after verification accepted that the Appellant's own funds were more than the investments at the time of investments. d) For the very same AY 2010-11, in the reassessment proceedings, the AU had himself accepted that the Appellant had made investments in long term investments fully out of own funds.” 4. We have considered the rival submissions and perused the record available. We find that the Tribunal has made factual observation in para 8, that A.O has expressed his satisfaction before invoking Rule 8D and after upholding the same has restored the matter of disallowance under Rule 8D(2)(ii) to the file of the A.O. with the following directions: “9. In continuation of our discussion, regarding the adjustment made by A.O under Rule 8D(2)(i) of the Rules (direct expenditure), we confirm the action of the A.O computing the direct expenses of Rs. 74,98,536/-, which assessee itself has suo-moto disallowed. Next regarding computation of disallowance under Rule 8D(2)(ii) of the Rules (indirect expenditure), we note that the A.O while computing the same at Rs.193,81,01,883/- on the reason stated at para 8 (supra) has taken note of certain relevant facts which we find has not been properly confronted to the assessee and therefore, there is per-se violation of nature justice qua the assessee qua the relevant Assessment Year and therefore, we set aside this part of the computation i.e., computation under Rule 8D(2)(ii) of the Rules back to the file of A.O and direct the A.O to give proper opportunity to the assessee and consider the assessee’s submission and relevant documents in support thereto and thereafter to pass order in accordance to law after hearing the assessee.” M.A No.38/Chny/2025 IDFC Ltd. :- 4 -: 5. From the above, it is clear that the Tribunal has restored the issue of disallowances under Rule 8D(ii) to the file of A.O and directed the A.O to give proper opportunity to assessee and consider the assessee’s submission and relevant documents and pass order according to law . The observation made in para 8 of the order that the A.O. had recorded satisfaction is in respect of the jurisdictional requirement for invoking Rule 8D, and does not preclude the assessee from presenting its factual and legal arguments during the remand proceedings. Therefore, we do not find any mistake apparent from the record within the meaning of section 254(2) of the Act. The issue raised in the MA requires a review of findings, which is beyond the scope of rectification permissible under the said provision as held by Hon’ble Madras High Court in the case of CIT vs. Tamil Nadu Small Scale Industrial Development Corporation Ltd. in TCA No.156 of 2006 dated 21.08.2007, as under: “The Tribunal has no power to review its order. When the Tribunal has already decided an issue by applying its mind against the assessee, the same cannot be rectified u/s. 254(2) of the Act. There was no necessity whatsoever on the part of the Tribunal to review its own order. Even after examination of the judgment of the Tribunal we could not find a single reason in the whole order as to how the Tribunal is justify and for what reasons. There is no apparent error on the face of the record and thereby, the Tribunal sat as an appellate authority over its own order. It is completely impermissible and the Tribunal has transferred out of its M.A No.38/Chny/2025 IDFC Ltd. :- 5 -: jurisdiction to allow a Miscellaneous Petition in the name of reviewing its own order.” In view of the above, the MA filed by the assessee is dismissed. 6. In the result, the MA filed by the assessee is dismissed. Order pronounced on 10th July, 2025. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0011ाियक सद\" / Judicial Member (जगदीश) (Jagadish) लेखा सद\" /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 10th July, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF "