2019 (12) TMI 1302 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT-A restricted the addition held that 0.5% of the investment treated as expenses incurred for earning exempt income - HELD THAT - No infirmity in the order of the CIT(A). In the case of Vireet Investment Pvt. Ltd. and Anr. 2017 (6) TMI 1124 - ITAT DELHI held that average value of investment which yielded exempt income during the year only shall be considered for the purpose of disallowance u/s 14A. Since the CIT(A) has given a categorical finding that the assessee has received dividend income of ₹ 6,48,431/- from the current investment of ₹ 11,02,496/-, therefore, 0.5% of the above investment has to be treated as expenses incurred for earning exempt income which comes to 5,512/- and which is in accordance with the decision of the Special Bench of the Tribunal cited (supra). Accordingly, we do not find any infirmity in the order of the CIT(A) and the same is upheld. Ground raised by the Revenue is accordingly dismissed.

Summary

Issues:
1. Disallowance under section 14A r.w.r. 8D of Income Tax Rules.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) relating to the assessment year 2014-15. The Revenue raised grounds challenging the CIT(A)'s decision to restrict the addition to ?5,512 instead of the initial disallowance of ?1,79,74,266 under section 14A r.w.r. 8D of the IT Act. The Assessing Officer had disallowed the substantial amount, but the CIT(A) determined that only 0.5% of the investment amount yielding exempt income should be considered as expenses incurred for earning such income, resulting in the reduced disallowance.

The Tribunal, comprising MS SUSHMA CHOWLA, JUDICIAL MEMBER, and SHRI R.K. PANDA, ACCOUNTANT MEMBER, after considering the arguments, upheld the CIT(A)'s decision. The Tribunal referred to the Delhi Special Bench's decision in the case of Vireet Investment Pvt. Ltd. and Anr., where it was held that only the average value of investments generating exempt income during the year should be taken into account for disallowance under section 14A. Since the assessee had received dividend income of ?6,48,431 from the current investment of ?11,02,496, the Tribunal agreed with the CIT(A)'s calculation of 0.5% of the investment amount as expenses incurred for earning exempt income, aligning with the Special Bench's ruling.

Therefore, the Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's appeal, affirming the restricted disallowance of ?5,512. The decision was pronounced in the open court on 31.12.2019.