2016 (1) TMI 1401 - AT - Income Tax

Addition u/s 14A r.w. Rule 8D - Held that - We have no doubt that the disallowance u/s 14A r.w. Rule8D (2) (iii) were applicable to the assessment year 2009-10 which is before us however we find a merit in the contention of the assessee that the disallowance has to be worked out on the basis of investments which yielded dividend during the year and not by factoring in the total amount of investments. In the case of ACB India Ltd. Vs. Assistant Commissioner of Income-tax 2015 (4) TMI 224 - DELHI HIGH COURT held that while calculating disallowance u/s 14A r.w. Rule8D (2)(iii) only those investments which yielded dividend should be taken into account and not those investments which did not earn any dividend during the year. Thus set aside the issue to the file of the AO with the direction to work out the disallowance u/s14A r.w. Rule8D(2)(iii) by taking those investments which yielded dividend during the year by giving reasonable and proper opportunity to the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Confirmation of addition by CIT(A) under section 14A r.w. Rule 8D.

Analysis:
The appeal was against the confirmation of the addition made by the Assessing Officer (AO) under section 14A r.w. Rule 8D. The assessee had not disallowed any expenses u/s 14A r.w. Rule 8D of the Act, leading to scrutiny by the AO. The AO disallowed a sum of Rs. 2,89,992 based on average investments, resulting in an assessed income of Rs. 93,21,998. The CIT(A) upheld the AO's order, emphasizing that it is impossible to earn substantial dividend income without incurring any expenses. The CIT(A) relied on precedents to support the disallowance under Rule 8D, stating that some expenditure is incurred for earning dividend income.

The assessee contended that the disallowed expenses were excessive and unreasonable, arguing that only investments yielding dividend income should be considered for disallowance under section 14A r.w. Rule 8D(2)(iii). The assessee referred to a judgment by the Delhi High Court supporting this argument. The Department, however, supported the lower authorities' decisions and requested the disallowance to be upheld.

The Tribunal acknowledged that the disallowance under section 14A r.w. Rule 8D(2)(iii) was applicable for the relevant assessment year. However, it agreed with the assessee's argument that only investments yielding dividend income should be considered for disallowance. Citing the Delhi High Court judgment, the Tribunal directed the AO to rework the disallowance by excluding investments that did not yield any dividend during the year. Consequently, the assessee's appeal was allowed for statistical purposes.

In conclusion, the Tribunal set aside the CIT(A)'s decision and directed the AO to recalculate the disallowance under section 14A r.w. Rule 8D(2)(iii) based on investments that yielded dividend income during the relevant year, in accordance with the Delhi High Court's ruling.