2021 (3) TMI 764 - AT - Income Tax

Disallowance u/s 14A - suo moto addition - HELD THAT - All the Investments are liable to be considered for the purpose of making disallowance u/s. 14A irrespective of the head under which they are placed. The embargo is that only the investments yielding exempt income during the year should be considered for computing average value of investments. The Hon'ble Delhi High Court in ACB India Ltd. 2015 (4) TMI 224 - DELHI HIGH COURT has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI - In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for recomputing the disallowance under Rule 8D(2)(iii) by considering only such investments in calculating the average value of investments, which have yielded exempt income during the year. The assessee will be allowed hearing opportunity in the fresh proceedings. It is further made clear that while computing disallowance u/s. 14A, the suo motu disallowance offered by the assessee should be accordingly reduced. Claiming deduction of Education Cess on income-tax for the year under consideration - HELD THAT - This issue is no more res Integra in view of the judgment of Hon'ble jurisdictional High Court in Sesa Goa Lt. Vs. JCIT 2020 (3) TMI 347 - BOMBAY HIGH COURT in which it has been held that Education Cess is not disallowable expenditure u/s. 40(a)(ii) of the Act. Similar view has earlier been taken in Chambal Fertilisers and Chemicals Ltd. and Another. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT - We, ergo, direct to allow deduction for such an amount after verification. - Assessee appeal is allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.
2. Claim for deduction of Education Cess on income-tax for the relevant year.

Disallowance under section 14A:
The appeal was against the CIT(A)'s order regarding the disallowance under section 14A for the assessment year 2013-14. The assessee had earned exempt dividend income during the year, and a disallowance under section 14A was offered by the assessee. The Assessing Officer (AO) disagreed with the assessee's calculation and computed the disallowance at a higher amount. The issue before the Tribunal was specifically related to the disallowance calculated by the AO based on the average investments. The Tribunal noted that all investments, regardless of the head under which they are placed, should be considered for disallowance under section 14A. However, only investments yielding exempt income during the year should be used to calculate the average value of investments. Citing relevant precedents, the Tribunal set aside the order and directed the AO to recompute the disallowance by considering only investments that had yielded exempt income during the year. The assessee was granted a hearing opportunity in the fresh proceedings, and it was clarified that the suo motu disallowance offered by the assessee should be reduced accordingly.

Claim for deduction of Education Cess:
The assessee raised an additional ground claiming a deduction for Education Cess on income-tax for the relevant year. The Tribunal admitted this additional ground as it raised a pure question of law. On merits, the Tribunal referred to a judgment of the jurisdictional High Court which held that Education Cess is not a disallowable expenditure under the Income-tax Act. Relying on this judgment and a similar view taken by another High Court, the Tribunal directed to allow the deduction for Education Cess after verification. Consequently, the appeal was allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of disallowance under section 14A and the claim for deduction of Education Cess meticulously, providing detailed analysis and citing relevant legal precedents to support its decisions. The judgment emphasized the correct computation of disallowances and deductions in accordance with the law, ensuring a fair assessment of the tax liability of the assessee.