2022 (5) TMI 1438 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - only submission made before us by the assessee is to the effect that the AO may be directed to compute disallowance u/s 8D(2)(iii) by considering only those investments which have yielded exempt income during the year - HELD THAT - As could be seen from the working furnished by the assessee the income from some investments are taxable. Therefore those investments obviously have to be reduced from the average value of investments. As regards the investments which have not yielded any exempt income during the year as per ratio laid down in various judicial precedents they cannot be considered for computing disallowance under Rule 8D(2)(iii). As relying on Caraf Builders Constructions (P.) Ltd. 2018 (12) TMI 410 - DELHI HIGH COURT we direct the Assessing Officer to factually verify assessee s claim with reference to the working of the investments which have either yielded taxable income or not yielded any income and thereafter compute the disallowance by considering only those investments which have yielded exempt income during the year.

Summary

Issues: Disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

Paragraph 2 of the judgment outlines the dispute concerning the disallowance of Rs.25,48,011 under section 14A of the Income-tax Act, 1961, read with Rule 8D of the Income-tax Rules, 1962 for the assessment year 2009-10. The Assessing Officer computed the disallowance as the assessee had earned exempt income during the year, which the assessee contested before the Commissioner (Appeals) and the Tribunal. The Tribunal sent the issue back to the Assessing Officer for a fresh decision. Subsequently, the Assessing Officer made the disallowance again, which was upheld by the Commissioner (Appeals).

Paragraph 4 of the judgment details the submission made by the assessee's counsel, requesting the computation of disallowance under Rule 8D(2)(iii) by considering only investments that yielded exempt income during the year. The assessee provided a working demonstrating the quantum of investments yielding exempt income during the year. The counsel relied on a decision of the Hon'ble Delhi High Court to support this contention.

Paragraph 7 of the judgment highlights the specific contention of the assessee that the disallowance under Rule 8D(2)(iii) should only consider investments that yielded exempt income during the year. The assessee's working was presented for reference in this regard.

Paragraph 8 of the judgment delves into the analysis of the investments, noting that income from some investments is taxable and should be deducted from the average value of investments. It references judicial precedents to assert that investments not yielding exempt income during the year should not be considered for computing disallowance under Rule 8D(2)(iii). A relevant observation from the Hon'ble Delhi High Court is provided to support this stance.

Paragraph 9 of the judgment concludes that the Assessing Officer should factually verify the assessee's claim regarding investments yielding taxable income or no income and compute the disallowance by considering only those investments that yielded exempt income during the year, in line with the Delhi High Court's ruling. As a result, the appeal is partly allowed.