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2020 (10) TMI 552 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D(2)(iii) on average investments - assessee has argued that the investment which yielded the exempt income is liable to be considered to assess the expenditure towards the exempt income u/s 14A read with Rule 8D - HELD THAT - In view of the observation made by the Special Bench Delhi in the case of Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI we set aside the finding of the CIT(Appeals) on the issue and direct the AO to assess the expenses to earn the exempt income by excluding the investment which did not yield the exempt income. Accordingly, we decide this issue in favour of the assessee. 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
Issues Involved:
1. Recalculation of disallowance under Section 14A read with Rule 8D(2)(iii). 2. Verification of revised computation under Section 94(7). 3. Addition of ?4,02,58,032/- due to non-charging of interest from loanees. Issue-wise Detailed Analysis: 1. Recalculation of disallowance under Section 14A read with Rule 8D(2)(iii): The assessee filed an appeal against the CIT(Appeals) order directing the AO to recalculate the disallowance under Section 14A read with Rule 8D(2)(iii) based on average investments of ?39,59,06,791/-. The CIT(A) considered investments capable of generating taxable income, those with no movement during the year, and those on which no exempt income was received. The assessee argued that only investments yielding exempt income should be considered for disallowance calculation, relying on the decision in Vireet Investment (82 taxmann.com 415). The ITAT agreed with the assessee, citing the Special Bench of ITAT, Delhi in Vireet Investment, which stated that only investments yielding exempt income should be included in the computation of average value of investments for Rule 8D(2)(iii). The ITAT directed the AO to exclude investments that did not yield exempt income, thereby deciding the issue in favor of the assessee. 2. Verification of revised computation under Section 94(7): The CIT(A) had referred the matter to the AO for verifying the revised computation under Section 94(7) with reference to the record date, not the date of receipt of the dividend. The ITAT found no reason to interfere with the CIT(A)'s order, as it was limited to verification and did not contain any infirmity. This ground was thus dismissed. 3. Addition of ?4,02,58,032/- due to non-charging of interest from loanees: The addition of ?4,02,58,032/- was made because the assessee did not charge interest from loanees. However, the assessee had not claimed any interest expenditure, and therefore, there was no reason for the addition. The ITAT upheld the CIT(A)'s order, confirming that only real income, not notional income, is taxable. The ITAT cited several decisions supporting this view, including Shoorji Vallabhdas & Co. (46 ITR 144 SC) and Godhra Electricity Co. Ltd. v. CIT (225 ITR 746 SC). This ground was dismissed, confirming the CIT(A)'s order. Delay in Pronouncement of Order: The ITAT acknowledged the delay in pronouncement due to the nationwide lockdown imposed on 24/03/2020 because of the COVID-19 pandemic. The lockdown led to unprecedented disruption of judicial work. The ITAT referenced the decision in DCIT v. JSW Limited (ITA Nos. 6264 & 6103/Mum/2018), which allowed for the exclusion of the lockdown period in computing the 90-day pronouncement period. The ITAT concluded that the delay was justified under these exceptional circumstances. Conclusion: The ITAT allowed the assessee's appeal, setting aside the CIT(A)'s findings on the recalculation of disallowance under Section 14A and directing the AO to exclude investments that did not yield exempt income. The other grounds were dismissed, and the order was pronounced considering the extraordinary circumstances caused by the COVID-19 pandemic.
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