2017 (10) TMI 1647 - AT - Income Tax

Disallowance u/s.14A r.w.r. 8D(2)(iii) - CIT(A) directed the AO to recompute the disallowance u/s.14A r.w.r.8D and to consider 0.5% of the average of the value of the investment the income from which does not or shall not form part of the total income - as contented CIT(A) s direction to re-compute the disallowance u/s.14A r.w.r.8D(2)(iii) was erroneous - HELD THAT - As the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of M/s.Computer Age Management Services (P) Ltd 2014 (11) TMI 1030 - ITAT CHENNAI computation of the disallowance under section 14A read with rule 8D(2) (iii) which is issue in the assessee s appeal is restored to the file of the Assessing Officer for re-computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(ii) and (ii) can be made in this case. Thus direct the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) by taking the amount equal to percentage of the average value of the investment which has given rise to the income which does not form part of total income. Revenue appeal dismissed.

Summary

Issues:
Appeal against the Order of the Commissioner of Income Tax (Appeals) directing re-computation of disallowance u/s.14A r.w.r.8D.

Analysis:
The Appellate Tribunal ITAT Chennai heard an appeal filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals)-8, Chennai, for the AY 2012-13. The only issue in the appeal was the direction by the Ld.CIT(A) to recompute the disallowance u/s.14A r.w.r.8D. The Ld.DR argued that the Ld.CIT(A)'s direction was erroneous and should be reversed. However, the Ld.AR contended that the issue was covered by a decision of the Co-ordinate Bench of the Tribunal in a previous case. The Co-ordinate Bench had held that disallowance under section 14A read with Rule 8D should only consider investments that have given rise to income not forming part of the total income.

The Co-ordinate Bench's decision emphasized that the disallowance under section 14A read with rule 8D should be in relation to income not forming part of the total income, and it should consider only investments that have generated such income. Therefore, not all investments should be considered when computing the disallowance. The Tribunal directed the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) by taking into account the amount equal to half a percentage of the average value of the investment that has generated income not forming part of the total income.

After considering the rival submissions and the precedent set by the Co-ordinate Bench in the case of M/s.Computer Age Management Services (P) Ltd., the Tribunal confirmed the findings of the Ld.CIT(A) on the issue. Consequently, the appeal filed by the Revenue was dismissed, and the decision was pronounced in the Open Court on October 09, 2017, at Chennai.