2018 (9) TMI 1920 - AT - Income Tax

Disallowance made u/s 14A of the Act - liquid mutual fund schemes - AO took the view that disallowance should be computed in accordance with Rule 8D of the I.T. Rules - HELD THAT - A perusal of the investment portfolio of the assessee would show that the assessee has invested in four schemes of mutual funds, out of which two items have been brought forward from earlier years. During the year under consideration, the assessee has made new investments in only two schemes - Since investment activity of the assessee is limited, the Assessing Officer was not justified in invoking provisions of Rule 8D of the I.T. Rules without recording dissatisfaction on the methodology adopted by the assessee. Considering low level of investment activity, the disallowance of ₹ 2.19 lakhs made by the assessee u/s. 14A of the Act would meet the requirements of section 14A of the Act - Accordingly, the order passed by the learned CIT(A) is set aside and the AO directed to accept the disallowance made by the assessee. Charging of interest u/s 234C of the Act - Learned AR submitted that there was error in the assessment order in computing interest u/s. 234C of the Act - HELD THAT - There should not be any dispute that interest u/s. 234C of the Act has to be computed on the returned income as per mandate of section 234C of the Act, after duly considering the advance tax paid by the assessee. According to the Ld A.R, there is mistake in the computation of interest - this issue restored to the file of the Assessing Officer for examining the claim of the assessee by duly considering the returned income as well as advance tax paid by the assessee. Appeal allowed.

Summary

Issues:
1. Disallowance made u/s. 14A of the Act.
2. Charging of interest u/s. 234C of the Act.

Analysis:

Issue 1 - Disallowance u/s. 14A of the Act:
The appeal concerned the disallowance made under section 14A of the Act. The assessee, engaged in the pharmaceutical business, earned exempt dividend income during the relevant assessment year. The Assessing Officer disallowed a specific amount under Rule 8D of the Income Tax Rules, which was confirmed by the CIT(A). The assessee contended that as the investments were mainly in liquid fund schemes, which did not require significant analysis, and the dividend income was reinvested or directly received, no additional expenditure was incurred. The Tribunal agreed with the assessee, noting the limited investment activity and lack of dissatisfaction with the methodology adopted. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to accept the disallowance made by the assessee.

Issue 2 - Charging of interest u/s. 234C of the Act:
The second issue revolved around the interest charged under section 234C of the Act. The assessee argued that the interest should be computed based on the "returned income" and considering the advance tax paid. It was contended that there was an error in the assessment order regarding the computation of interest under section 234C. The Tribunal acknowledged the requirement to compute interest on the returned income while duly considering the advance tax paid. Consequently, the Tribunal remanded this issue back to the Assessing Officer for re-examination, taking into account the returned income and advance tax paid by the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee, pronouncing the order on 26.9.2018.