2021 (1) TMI 734 - AT - Income Tax

Disallowance u/s.14A r.w.r. 8D - Suo moto disallowance by assessee - AR submitted that the AO had made the impugned disallowance in terms of provision of Rule 8D(2) (iii), which was incorrect because there was no opening and closing balance of investments in the assessee's books on the first day and the last day of the year under consideration - HELD THAT - We note that the AO has mentioned that the assessee has suo motu disallowed as disallowance u/s. 14A of the Act. Although, AR has argued that no such suo motu disallowance was made by the assessee in its computation of income, for want of evidences we cannot look into the issue at this juncture. Considering the smallness of the amount and also the alternate plea of the Ld. Authorized Representative on overall facts of the case, we direct that the disallowance be restricted to ₹ 67,853/- i.e. the amount of dividend earned by the assessee during the year under consideration. Appeal of the assessee stands partly allowed.

Summary

Issues:
Challenge to disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
The appellant, a subsidiary company, challenged the disallowance of ?8,28,036 under section 14A of the Income Tax Act, 1961 for Assessment Year 2013-14. The appellant's return showed a loss of ?11,20,235, and the assessment was completed at a loss of ?2,92,199 after the disallowance. The appellant contended that the Assessing Officer incorrectly applied Rule 8D(2)(iii) as there were no opening and closing balances of investments, leading to a plea for a nil disallowance. Additionally, the appellant disputed the assertion of a suo motu disallowance of ?67,853, suggesting a restriction of disallowance to the dividend earned during the year.

The Authorized Representative argued against the correctness of the disallowance calculation, while the Sr. Departmental Representative supported the Lower Authorities' orders. Upon review, it was noted that the Assessing Officer mentioned a suo motu disallowance of ?67,853 in the assessment order, although the appellant disputed making such a disallowance. Due to lack of evidence, the Tribunal could not delve into this issue. Considering the small amount involved and the overall case facts, the Tribunal directed the disallowance to be restricted to ?67,853, the dividend earned by the appellant during the relevant year.

The Tribunal partially allowed the appeal, limiting the disallowance to the amount of dividend earned during the year. The decision was announced on 4th January, 2021, following a Virtual Hearing.