2019 (3) TMI 12 - AT - Income Tax

Disallowance u/s 14A - total investments for Rule 8D - strategic investment - disallowance in the opinion of AO, was to be worked out by considering the total investments irrespective of the fact that whether these investments yielded any exempt income during impugned AY or not - HELD THAT - We find that the disallowance worked out by the assessee is well in line with the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it has been held that only exempt income yielding investments were to be considered to arrive at the said disallowance. Therefore, the additional expense disallowance made under normal provisions, as made by Ld. AO, could not be sustained and the stand of FAA, though on different reasoning, was to be confirmed. Accordingly Ground Number- 1 stand dismissed. Plea of exclusion of strategic investment as accepted by FAA while granting relief to the assessee, is concerned, same stand could not be sustained in view of decision of Hon ble Apex Court in Maxopp Investment Ltd. Vs CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA Applicabily of Rule 8D in MAT - adjustment of disallowance u/s 14A while computing Book Profits u/s 115JB - HELD THAT - As submitted that in terms of the cited decision of Special bench, disallowance was to be worked out with reference to expenses debited by the assessee in the Profit & Loss Account on actual basis and not by resorting to computational mechanism as provided in Rule 8D (2). Followed Reliance Capital Ltd. 2019 (2) TMI 1543 - ITAT MUMBAI where it was held that disallowance u/s 14A was to be made in terms of Clause (f) of Explanation-1 to Section 115JB. Therefore, the matter, stand restored back to the file of AO to ascertain the actual expenses debited in the Profit & Loss Account to earn the exempt income and make disallowance u/s 115JB accordingly. The assessee is directed to provide the details thereof. Ground No. 3 stands allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 14A with Rule 8D for Assessment Year 2014-15.
2. Disallowance of expenses relatable to exempt income under section 115JB of the Act.

Analysis:

Issue 1: Disallowance under section 14A with Rule 8D for Assessment Year 2014-15:
The appeal by the revenue contested the order of the Ld. Commissioner of Income-Tax (Appeals) for Assessment Year 2014-15 on various grounds. The first ground questioned the disallowance under section 14A with Rule 8D(2)(iii) and the application of CBDT Circular No.5 of 2014. The second ground challenged the deletion of disallowance based on a High Court decision. The third ground questioned the adjustment made to Book Profit under section 115JB. The assessee, engaged in Investment Management & Portfolio Management Services, earned exempt dividend income and offered a suo-moto expense disallowance under Rule 8D(2)(iii). The Tax Auditor's disallowance was accepted, resulting in additional disallowance. The Ld. CIT(A) deleted the additional disallowance under normal provisions, citing strategic investments in subsidiaries. The revenue appealed, but the Tribunal upheld the CIT(A)'s decision based on a Delhi Tribunal decision. The Tribunal dismissed the revenue's appeal on this ground.

Issue 2: Disallowance of expenses relatable to exempt income under section 115JB of the Act:
Regarding the adjustment of disallowance under section 115JB, the Tribunal noted that the disallowance should be based on actual expenses debited in the Profit & Loss Account, not Rule 8D(2). The Tribunal referred to a recent decision involving the assessee's sister concern and directed the matter back to the Ld. AO to ascertain actual expenses and make disallowance accordingly. The Tribunal allowed this ground for statistical purposes. Despite the revenue succeeding on one ground, the overall appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal's judgment addressed the issues of disallowance under section 14A with Rule 8D and the adjustment of expenses under section 115JB, providing detailed analysis and referencing relevant legal precedents and decisions.