2020 (12) TMI 716 - AT - Income Tax

Disallowance u/s. 14A r.w. Rule 8D(2)(ii) - HELD THAT - We find that Ld.CIT(A) following the decision of CIT v. Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and CIT v. HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT deleted the disallowance as the assessee has its own interest free funds by way of share capital reserves and surplus, far in excess of the investments made by it in equity shares which got yielded exempt income. We do not find any infirmity in the order of the Ld.CIT(A). Thus, the grounds of the revenue on this issue are dismissed. Disallowance u/s. 14A while computing book profits u/s.115JB - CIT(A) following the decision of Hon'ble Special Bench of Delhi in the case of ACIT v. Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Therefore, respectfully following the said decision we restore this issue to the file of the Assessing Officer who shall decide in accordance with the decision of the Special Bench and compute the book profits accordingly. Grounds on this issue are allowed for statistical purpose. Respectfully following the decision of the Hon'ble Special Bench in the case of ACIT v. Vireet Investments Private Limited (supra), we direct the Assessing Officer to compute the disallowance as per Rule 8D(2)(iii) of I.T. Rules by considering only those investments which yielded dividend income during the assessment year under consideration.

Summary

Issues Involved:
Appeal against deletion of disallowance under Rule 8D(2)(ii) and u/s. 14A while computing book profits u/s. 115JB.

Analysis:
1. Disallowance under Rule 8D(2)(ii) of I.T. Rules:
The Revenue challenged the deletion of disallowance made under Rule 8D(2)(ii) of I.T. Rules regarding interest. The ITAT Mumbai upheld the decision of the Ld.CIT(A) based on precedents like CIT v. Reliance Utilities and Power Ltd. and CIT v. HDFC Bank. The ITAT noted that the assessee had interest-free funds exceeding its investments in equity shares generating exempt income, leading to the deletion of the disallowance. The ITAT dismissed the Revenue's grounds on this issue.

2. Disallowance u/s. 14A for computing book profits u/s. 115JB:
Regarding the disallowance u/s. 14A while computing book profits u/s. 115JB, the ITAT referred to the decision of the Hon'ble Special Bench of Delhi in ACIT v. Vireet Investments Private Limited. Following this decision, the ITAT directed the issue back to the Assessing Officer to compute book profits without applying Rule 8D of I.T. Rules. The ITAT allowed the grounds on this issue for statistical purposes.

3. Cross Objection by the Assessee:
The cross objection by the assessee focused on considering only investments yielding dividend income for computing disallowance under Rule 8D(2)(iii) of I.T. Rules. Citing the decision in ACIT v. Vireet Investments Private Limited, the ITAT directed the Assessing Officer to calculate the disallowance under Rule 8D(2)(iii) by including only those investments that yielded dividend income during the relevant assessment year.

In conclusion, the ITAT partly allowed the Revenue's appeal and allowed the assessee's cross objection for statistical purposes. The delay in pronouncement was attributed to the COVID-19 lockdown, in accordance with Rule 34(5) of ITAT Rules and the orders of the Hon'ble Bombay High Court. The ITAT's order was pronounced on 30.09.2020 as per Rule 34(4) of ITAT Rules.