2019 (2) TMI 1897 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D(2)(iii) - HELD THAT - This issue is covered in favour of the assessee in various decisions of the ITAT and one of such decisions is the decision of the Special Bench of Delhi ITAT in the case of Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI wherein it has been held that the disallowance under Rule 8D(2)(iii) can be only of the average of investments which have yielded exempt income. Respectfully following the same, the additional grounds of appeal are allowed. Computation of income u/s 115JB - This issue is also covered in favour of the assessee by the Special Bench, ITAT Delhi decision in the case of Vireet Investments Private Limited (supra) wherein it was held that the computation u/s 115JB should be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of the IT Rules, 1962. Accordingly, grounds raised by the assessee are allowed.

Summary

Issues:
1. Disallowance under section 14A r.w.s 8D of the IT Act.
2. Applicability of disallowance under section 14A for computing book profits u/s 115JB of the Act.

Analysis:
1. The appeal was filed against the order of the CIT(A)-3, Hyderabad for the assessment year 2013-14. The assessee, a company deriving income from investments and rents, filed its return of income admitting income under normal provisions and book profits u/s 115JB of the Act. The AO observed that the company earned exempt dividend income and income from mutual funds, questioning why disallowance u/s 14A r.w.s 8D was not made. The assessee contended that investments were not made from borrowed funds and no direct expenditure was attributable to dividend income. The AO, however, made a disallowance under Rule 8D(2)(iii) and added it back to book profits for computing income u/s 115JB. The CIT(A) confirmed the AO's order, leading to the appeal before ITAT. The assessee raised grounds challenging the CIT(A)'s decision, arguing that the disallowance should be made only on investments yielding exempt income. The ITAT, considering various decisions, allowed the additional grounds of appeal, ruling in favor of the assessee on the disallowance issue under Rule 8D(2)(iii).

2. The ITAT also addressed the computation of income u/s 115JB, finding in favor of the assessee based on the decision of the Special Bench of Delhi ITAT in the case of Vireet Investments Private Limited. The ITAT held that the computation u/s 115JB should be done without resorting to the computation as contemplated under section 14A r.w. Rule 8D of the IT Rules, 1962. Consequently, the grounds raised by the assessee regarding the computation of income u/s 115JB were allowed. As a result, the appeal filed by the assessee was allowed by the ITAT, pronouncing the judgment on 13th February 2019.