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2021 (2) TMI 776 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - Whether investments which yielded dividend income should be considered for the purpose of Rule 8D? - HELD THAT - We note that for the relevant assessment year i.e. AY 2015-16 the settled law in respect of computing disallowance under Rule 8D(2)(iii) was the decision of this Tribunal in REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA There is an amendment in law which happened by the passage of the Finance Act, 2016 which is applicable for AY 2017-18 onwards, so the amended provision of section 14A read with Rule 8D of the Rules would be not be applicable for this relevant AY, so the direction by the Ld. CIT(A) for AY 2015-16, is legally untenable Law applicable on this issue will be as laid in REI Agro Ltd. (supra) wherein this Tribunal has directed that only investments which yielded dividend income should be considered for the purpose of computing of disallowance under Rule 8D(2)(iii) of the Rule. Therefore, the directions given by the ld. CIT(A) with regard to three specific investments made in mutual fund to AO to consider the monthly average of such dividend bearing investment have not the sanction of law, since it may, if applicable only from AY 2017-18 and not before that, therefore, we modify the order of the Tribunal and direct the AO to consider the disallowance made under Rule 8D(2)(iii) should be restricted to the average of the opening and closing value of those investments appearing as on 01.04.2014 and 31.03.2015 which actually yielded dividend income during the relevant FY.
Issues involved:
1. Disallowance computation under Section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 for AY 2015-16. Analysis: Issue 1: Disallowance computation under Section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 for AY 2015-16: The assessee challenged the order of the Tribunal regarding the computation of disallowance under Rule 8D(2)(iii). The contention was that the Ld. CIT(A) directed the AO to consider the 'monthly average of certain specific investments in mutual funds' instead of the 'average of the opening and closing value of such investments' as prescribed in Rule 8D(2)(iii). The Tribunal noted that the law applicable for AY 2015-16 was as laid down in the case of REI Agro Ltd., which directed that only investments yielding dividend income should be considered for disallowance under Rule 8D(2)(iii). The Tribunal found the direction by the Ld. CIT(A) for AY 2015-16 to be legally untenable, as the amended provision of Section 14A and Rule 8D, effective from AY 2017-18 onwards, was not applicable for the relevant AY. Therefore, the Tribunal modified the order, directing the AO to restrict the disallowance under Rule 8D(2)(iii) to the average of the opening and closing value of investments yielding dividend income during the relevant financial year. The Tribunal allowed the assessee's Misc. Application, holding in favor of the assessee. This detailed analysis provides insights into the legal judgment regarding the computation of disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 for AY 2015-16. It highlights the arguments presented by the parties, the Tribunal's assessment of the legal provisions, and the final decision in favor of the assessee based on the applicable law for the relevant assessment year.
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