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2021 (5) TMI 684 - AT - Income TaxDisallowance made u/s.14A of the Act r.w.r. 8D(2) - assessee had made suo-moto disallowance - HELD THAT - As expenses should also be considered in the total expenditure considered by the assessee for working out the disallowance in the ratio of exempt income to total income. We hold that the computation mechanism provided in Rule 8D(2) of the Rules results in absurdity in the peculiar facts of the instant case. Accordingly we direct the ld. AO to recompute the disallowance by taking suo-moto disallowance made by the assessee and include the aforesaid six expenses (Sr. Nos. A to F above) in the ratio of exempt income to total income and workout the disallowance u/s. 14A of the Act accordingly under normal provisions of the Act. Accordingly the ground Nos. 1(a) to 1(e) raised by the assessee are partly allowed for statistical purposes. Chargeability of interest u/s. 234D - Refund was susdquently withdrawn after rectification u/s 154 - AR before us argued that interest u/s. 234D of the Act could be charged only when refund has been granted to the assessee u/s. 143(1) - HELD THAT - We are unable to accept to this proposition made by the ld. AR for the reason that the section 154 order dated 11/12/2009 was only rectification of intimation u/s. 143(1) of the Act. Hence effectively refund is granted to the assessee only u/s. 143(1). Hence we hold that interest u/s. 234D of the Act is leviable. In our opinion the order passed u/s. 143(1) and 154 of the Act are to be read together. Accordingly the ground No. 2 raised by the assessee is dismissed. Disallowance u/s. 14A of the Act r.w.r. 8D(2) of the Rules while computing book profits u/s. 115JB of the Act - HELD THAT - Since we have tinkered with the identification of actual expenses incurred by the assessee for the purpose of earning exempt income by including few more expenses while giving directions to ld. AO to recompute disallowance under normal provisions of the Act the same disallowance so re-computed should be made under Clause(f) of Explanation 1 to Section 115JB(2) of the Act. Accordingly the additional ground No. 1 raised by the assessee vide letter dated 09/08/2017 is partly allowed for statistical purposes. Claim of deduction u/s. 35DD - AR argued that demerger took in A.Y. 2008-09 but expenditure on demerger took place in A.Y. 2009-10 - HELD THAT - Quantum of allowability of expenses u/s. 35DD need to be determined factually by the ld. AO. Infact the ld. CIT(A) had also recorded the fact that assessee had incurred expenditure towards demerger and had disallowed the same voluntarily in the return of income. Hence this goes to prove that facts are already in record. Hence with the consent of both the parties we deem it fit to remand this issue to the file of the ld. AO to determine the quantum of expenses eligible for deduction u/s. 35DD of the Act in the year under consideration. At the cost of repetition we hold in principle that assessee is eligible for deduction u/s. 35DD of the Act commencing from the A.Y. 2008-09 for a total period of five assessment years. Accordingly the additional ground No. 2 raised by the assessee vide letter dated 09/08/2017 is allowed for statistical purposes.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D(2). 2. Chargeability of interest under Section 234D. 3. Disallowance under Section 14A for computing book profits under Section 115JB. 4. Claim of deduction under Section 35DD. 5. Claim of deduction for education cess. 6. Taxability of interest on refund under Section 244A. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D(2): The assessee, primarily an investment company, had earned substantial exempt income and made a suo-moto disallowance of Rs. 10 lakhs under Section 14A. The Assessing Officer (AO) disregarded this and computed a higher disallowance using Rule 8D(2). The CIT(A) adjusted this disallowance but restricted it to the actual expenditure claimed. The Tribunal found the AO's approach unsatisfactory as it lacked proper justification and directed the AO to recompute the disallowance by including specific common expenses identified by the Tribunal, ensuring a rational basis for the disallowance. 2. Chargeability of interest under Section 234D: The assessee contested the chargeability of interest under Section 234D, arguing that the refund was granted under Section 154 and not under Section 143(1). The Tribunal rejected this argument, stating that the Section 154 order was a rectification of the Section 143(1) intimation, thus validating the charge of interest under Section 234D. 3. Disallowance under Section 14A for computing book profits under Section 115JB: The Tribunal referred to the Special Bench decision in ACIT vs. Vireet Investments, which held that Rule 8D(2) is not applicable for disallowance under Clause (f) of Explanation 1 to Section 115JB(2). The Tribunal directed the AO to recompute the disallowance based on actual expenses attributable to earning exempt income, aligning with the directions given for normal provisions. 4. Claim of deduction under Section 35DD: The assessee claimed deduction for demerger expenses under Section 35DD, arguing that the deduction should commence from the year of demerger (A.Y. 2008-09) despite the expenses being incurred in A.Y. 2009-10. The Tribunal agreed in principle but remanded the issue to the AO to determine the quantum of eligible expenses factually. 5. Claim of deduction for education cess: The Tribunal allowed the deduction for education cess, following the jurisdictional High Court decision in Sesa-Goa Ltd. vs. JCIT, which permitted such a deduction. 6. Taxability of interest on refund under Section 244A: The assessee had already offered part of the interest on refund to tax in an earlier year but was taxed again on the entire amount in A.Y. 2009-10, leading to double taxation. The Tribunal remanded the issue to the AO for verification, directing that only the differential amount should be taxed if the earlier amount was already offered. Conclusion: The appeals were partly allowed for statistical purposes, with directions for recomputation and verification on various issues. The Tribunal's orders emphasized rational and fair computation of disallowances and deductions, ensuring adherence to legal precedents and proper verification of facts.
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