2022 (12) TMI 1467 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance of the assessee - Mandation of recording satisfaction by AO - HELD THAT - We find justification in the order of the ld. CIT(A) in upholding the A.O. s action in invoking the provision of Rule 8D(2)(ii) by rejecting the assessee s contention that suo moto disallowance by the assessee warrants no further disallowances. The assessee s alternate claim is that the disallowance u/s. 14A r.w.r. 8D(2)(iii) should be restricted only to those investments on which exempt income was earned by the assessee during the impugned year by placing reliance on the decision of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI is acceptable. We uphold the order of the ld. CIT(A) in directing the A.O. to recompute the disallowance only to the investments which have yielded exempt income during the impugned year. Appeal filed by the Revenue is dismissed.

Summary

Issues:
- Delay in filing appeal and cross objection
- Justification of disallowance under section 14A
- Application of Rule 8D for disallowance calculation
- Consideration of exempt income for disallowance calculation

Delay in filing appeal and cross objection:
The judgment addresses a delay of 553 days in filing the appeal and 53 days in filing the cross objection. The tribunal condones the delay after finding sufficient cause presented by both parties.

Justification of disallowance under section 14A:
The Revenue challenges the order of the Commissioner of Income Tax (Appeals) regarding the disallowance under section 14A of the Income Tax Act, 1961. The Revenue questions the justification of allowing the appeal of the assessee, citing the insertion of a clarification in section 14A and the constitutional validity of Rule 8D upheld by the Bombay High Court. The tribunal examines the facts of the case, including the assessee's exempt income from the sale of listed equity shares and the disallowance made by the Assessing Officer (A.O.). The tribunal upholds the decision of the Commissioner in directing the A.O. to recompute the disallowance based on specific investments yielding exempt income.

Application of Rule 8D for disallowance calculation:
The tribunal analyzes the application of Rule 8D for calculating the disallowance under section 14A. The Commissioner of Income Tax (Appeals) considered the absence of borrowed funds by the assessee and the expenses claimed, including commission expenses and other expenses. The tribunal supports the Commissioner's decision to invoke Rule 8D(2) based on the satisfaction recorded by the A.O. and various judicial precedents. The tribunal agrees with restricting the disallowance to investments generating exempt income during the relevant year.

Consideration of exempt income for disallowance calculation:
The tribunal evaluates the contention regarding the consideration of exempt income for disallowance calculation under section 14A. The assessee's claim of making a suo moto disallowance and restricting disallowance to investments yielding exempt income is examined. The tribunal finds merit in the Commissioner's decision to uphold the A.O.'s action in invoking Rule 8D and calculating the disallowance based on investments generating exempt income. The tribunal dismisses the appeal filed by the Revenue and upholds the order directing the A.O. to recompute the disallowance only on investments yielding exempt income.

In conclusion, the tribunal dismisses the appeal filed by the Revenue and the cross objection filed by the assessee, affirming the order of the Commissioner of Income Tax (Appeals) regarding the disallowance under section 14A and the application of Rule 8D for calculating the disallowance based on investments generating exempt income.