2020 (7) TMI 187 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - investment in shares - Addition partly sustained by the Ld. CIT(A) - HELD THAT - Entire investment in shares was made by the assessee out of her own funds and it is observed that this position was accepted by the AO as well as by the CIT(A) thus disallowance made on account of interest u/s 14A as worked out by applying Rule 8D(2)(ii) thus is not sustainable and direct the AO to delete the same. Disallowance on account of other expenses u/s 14A r.w.r. 8D(2)(iii) - assessee has contended that the same is required to be worked out by taking into consideration only the value of investment in shares which actually fetched the exempt dividend income to the assessee and not the value of entire investment as done by the AO - HELD THAT - Since this contention of the assessee is duly supported by the decision of Hon ble Kolkata High Court in the case of REI Agro Ltd 2013 (12) TMI 1517 - CALCUTTA HIGH COURT we direct the AO to re-compute the disallowance to be made by applying Rule 8D(2)(iii) taking into consideration only the value of investment in shares which actually fetched exempt dividend income to the assessee during the year under consideration. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues involved:
Disallowance made by the AO u/s 14A of the Act r.w.r. 8D partly sustained by the Ld. CIT(A).

Analysis:

Issue 1: Disallowance made u/s 14A on account of interest as per Rule 8D(2)(ii)
The assessee contended that the entire investment in shares was made using her own funds, a fact acknowledged by both the AO and the Ld. CIT(A). The disallowance of interest u/s 14A as per Rule 8D(2)(ii) was deemed unsustainable. The Tribunal directed the AO to delete this disallowance.

Issue 2: Disallowance on account of other expenses u/s 14A r.w.r. 8D(2)(iii)
The assessee argued that the disallowance should be calculated based on the value of investment in shares that generated the exempt dividend income, not the total investment as done by the AO. Citing a judgment of the Hon’ble Kolkata High Court, the Tribunal directed the AO to recompute the disallowance under Rule 8D(2)(iii) considering only the value of shares that yielded exempt dividend income.

Issue 3: Exclusion of lockdown days in pronouncement of the order
The Tribunal noted the delay in pronouncing the order but excluded the lockdown days due to the COVID-19 pandemic. This decision was supported by a precedent from the Mumbai Tribunal in a similar context.

Conclusion:
The Tribunal partially allowed the appeal of the assessee, directing the AO to delete the disallowance of interest u/s 14A and to recalculate the disallowance of other expenses under Rule 8D(2)(iii) based on the value of shares generating exempt dividend income. The exclusion of lockdown days was considered while pronouncing the order.