2020 (7) TMI 687 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - AO made the addition under Rule 8D(2)(iii) - total quantum of exempt income earned by the assessee was much higher than that of the disallowance made by the Ld. AO - HELD THAT - We have carefully considered the judgment passed by the Hon ble Delhi Bench in the matter of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI as relied upon by the Ld. AR. However, we find that the ratio laid down in the said judgment has not been followed in its true spirit. As we find that while making addition of.5% of the average investment under Rule 8D(2)(iii) the Ld. AO considered the entire investment made by the assessee instead of only those investment which yielded exempt income during the year. Thus, having regard to the entire facts and circumstances of the case we dispose of the appeal by restoring the issue to the file of the Ld. AO for re-computing the disallowance under Section 14A of the Act on the basis of investment which yielded exempt income in the year under consideration as observed by us hereinabove. Assessee s appeal is thus allowed for statistical purpose. 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:
1. Disallowance under section 14A of the Income Tax Act, 1961 for Assessment Year 2014-15.

Analysis:
The appeal was filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) – 2, Mumbai, arising from the order passed by the ACIT, Cir-1 (2)(1), Mumbai under section 143(3) of the Income Tax Act, 1961. The assessee, a consultancy company in insurances and risk management, declared total income at &8377; 36,39,62,800/- for A.Y. 2014-15. An addition of &8377; 17,72,201/- was made under section 14A of the Act, which was later restricted to &8377; 12,61,787/- by the Ld. CIT(A). The appeal was filed challenging this disallowance.

During the assessment, it was found that the average value of tax-free investment was &8377; 25,23,57,489/-, and the assessee earned dividend income of &8377; 95,17,274/-. The AO applied Rule 8D of the Act to compute the disallowance, considering all investments made by the assessee, not just those yielding exempt income. The Ld. CIT(A) upheld the addition under Rule 8D(2)(iii) but directed to restrict the disallowance to &8377; 1,685/- and &8377; 12,61,787/- under Rule 8D(2)(i) & 8D(2)(iii) respectively. The Tribunal noted discrepancies in the application of Rule 8D and directed the AO to recompute the disallowance based only on investments yielding exempt income for the year under consideration.

The Tribunal found that the AO's computation under Rule 8D was incorrect as it considered all investments, not just those yielding exempt income. The judgment relied upon by the assessee was not followed accurately. The Tribunal, therefore, allowed the appeal for statistical purposes and remanded the issue to the AO for re-computation of the disallowance under Section 14A based on investments yielding exempt income in the relevant year.

The Tribunal also addressed a procedural issue regarding the delay in pronouncing the order beyond 90 days. Citing the exceptional circumstances of the COVID-19 lockdown and subsequent disruptions in judicial functioning, the Tribunal excluded the lockdown period while computing the time limit for pronouncing the order, in line with the directions of the Hon’ble Supreme Court and Bombay High Court. The order was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rule 1963, considering the extraordinary situation caused by the pandemic.

In conclusion, the assessee's appeal was allowed for statistical purposes, and the issue of disallowance under section 14A was remanded for re-computation based on investments yielding exempt income during the relevant year. The Tribunal also addressed the procedural delay in pronouncing the order, attributing it to the extraordinary circumstances of the COVID-19 lockdown.