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2019 (6) TMI 792 - AT - Income TaxExcessive disallowance u/s 14A r.w. Rule 8D(2)(iii) - HELD THAT - Identical issue has been adjudicated by Delhi Special Bench in the case of ACIT vs. Vireet Investment (P.) Ltd 2017 (6) TMI 1124 - ITAT DELHI wherein held that investments not yielding any income during the year has to be excluded while calculating the average investments and the disallowance has been to be worked out only thereafter on the basis of investment actually yielding tax free income. We therefore find substantial merit in the case of the assessee. We also observe that the assessee was entitled to claim revision of disallowance notwithstanding higher disallowance suo motu made in the return of income in the light of the decision of CIT vs. Pruthvi Brokers and Shareholders P. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT . We accordingly set aside the order of the CIT(A) and direct the AO to restrict the disallowance MAT computation - Excessive adjustments on account of disallowance u/s 14A under special provisions of Section 115JB - HELD THAT - In the light of decision of Special Bench in Vireet Investment (supra) and in view of findings given by the co-ordinate bench in assessee s own case concerning AY 2012-13 we find substantial merit in the plea of the assessee to restrict the adjustments in respect of disallowance relatable to exempt income notwithstanding higher adjustments made by the assessee. AO is directed to redo the computation of book profit u/s 115JB of the Act accordingly. The second issue is accordingly resolved in favour of the assessee. Computation of the annual value u/s 23 - Disallowance of bad debts in respect of unrealized rent - HELD THAT - We find that the issue is squarely covered in favour of the assessee in view of the express statutory provision in terms of Explanation below Section 23 r.w. Rule 4 of the IT Rules 1962. The Explanation clearly provides for deduction of unrealized rent while computing the annual value under s.23 of the Act. Rule 4 expounded the aforesaid Explanation whereby the unrealized rent lost as irrecoverable is required to be reduced from the chargeable annual value. It is not necessary that unrealized rent should be related to the same year. We therefore find merit in the plea of the assessee on this issue as well. The issue is thus resolved in favour of the assessee.
Issues:
1. Excessive disallowance under s.14A r.w. Rule 8D(2)(iii) 2. Excessive adjustments on account of disallowance under s.14A under special provisions of Section 115JB 3. Disallowance of bad debts in respect of unrealized rent Analysis: Issue 1: Excessive disallowance under s.14A r.w. Rule 8D(2)(iii) The assessee initially made a disallowance of &8377; 64,61,002 under Rule 8D(2)(iii) of the IT Rules for AY 2013-14. However, during assessment, the disallowance was revised to &8377; 34,21,118 due to a mistake in including all equity investments for computation, regardless of yielding tax-free income. Judicial decisions clarified that disallowance should be based only on equity investments generating tax-free income. The AO was informed of the revision. Citing the Delhi Special Bench case and a previous ruling in favor of the assessee, the Tribunal upheld the revision, setting aside the CIT(A)'s order and directing the AO to limit disallowance to &8377; 34,21,118. Issue 2: Excessive adjustments on account of disallowance under s.14A under special provisions of Section 115JB Regarding adjustments in book profit under s.115JB due to disallowance under s.14A, the Tribunal referred to the Vireet Investment case and a previous ruling in the assessee's favor for AY 2012-13. It directed the AO to restrict adjustments to &8377; 34,21,118 for disallowance related to exempt income, resolving the issue in favor of the assessee. Issue 3: Disallowance of bad debts in respect of unrealized rent The Tribunal considered the statutory provision under Explanation below Section 23 r.w. Rule 4 of the IT Rules, stating that unrealized rent should be deducted while computing the annual value under s.23 of the Act. Rule 4 further clarified the treatment of unrealized rent as irrecoverable. The Tribunal found merit in the assessee's plea, resolving the issue in favor of the assessee. In conclusion, the appeal filed by the assessee was allowed based on the resolutions of all three issues in favor of the assessee.
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