2018 (10) TMI 919 - AT - Income Tax

Addition invoking the provisions of Section 14A r.w.r.8D - Held that - As held in STHITHI INSURANCE SERVICES PVT. LTD. AND VICE-VERSA 2018 (6) TMI 1538 - ITAT CHENNAI application of Rule 8D is not automatic. If the assessee computes to the satisfaction of the Ld.Revenue Authorities the expenses incurred by it with respect to investments earning exempt dividend then the same should be disallowed. Only when such computation is not possible Rule 8D should be applied for computing the disallowance U/s.14A of the Act. Since we have already decided the issue with respect to computation of disallowance U/s.14A r.w.r. 8D of the Rules in the decision cited supra, we remit back the matter to the file of Ld.AO to compute the disallowance U/s.14A of the Act in the similar manner. - Decided in favour of assessee for statistical purposes

Summary

Issues Involved:
1. Disallowance of expenditure under Section 14A r.w.r. 8D of the Income Tax Act.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) confirming the addition made by the Assessing Officer regarding the disallowance of expenditure under Section 14A r.w.r. 8D of the Income Tax Act. The assessee, a company engaged in the hotel business, filed its return of income for the assessment year 2014-15. The Assessing Officer made an addition towards disallowance of expenditure and income earned from its wholly owned subsidiary in Hong Kong. The Commissioner of Income Tax (Appeals) upheld the addition made by the Assessing Officer under Section 14A r.w.r. 8D of the Rules, leading to the appeal before the Appellate Tribunal.

The Appellate Tribunal referred to a previous decision in the case of M/s. Sthithi Insurance Services Pvt. Ltd. where it was held that the application of Rule 8D for computation of disallowance under Section 14A is not automatic. The Tribunal emphasized that if the assessee can satisfactorily compute the expenses incurred with respect to investments earning exempt dividend, then such expenses should be disallowed. Rule 8D should only be applied when such computation is not feasible. The Tribunal highlighted that the expenditure towards earning exempt income cannot be claimed as a deduction from taxable profit without proper computation. Therefore, the Tribunal remitted the matter back to the Assessing Officer to compute the disallowance under Section 14A in a similar manner as decided in the previous case.

In conclusion, the appeal of the assessee was allowed for statistical purposes, and the matter was remitted back to the Assessing Officer for the computation of disallowance under Section 14A r.w.r. 8D of the Income Tax Act based on the principles discussed in the previous decision. The order was pronounced on 20th August 2018 at Chennai.