2021 (6) TMI 498 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - exempt income to be considered for the purpose of arriving at average value of investment - HELD THAT -The Hon'ble Special Bench of Income Tax Appellate Tribunal, Delhi in the case of Asstt. CIT Vs. Vireet Investment (P) Ltd., 2017 (6) TMI 1124 - ITAT DELHI has held that while computing the amount of disallowance under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule, the value of investment which yielded exempt income alone has to be considered for the purpose of arriving at average value of investment, on the similar lines, the decision of the Hon'ble Delhi High Court in the case of ACB India Ltd. Vs. Assistant Commissioner of Income Tax 2015 (4) TMI 224 - DELHI HIGH COURT and the decision of Marg Ltd. Vs. CIT, 2020 (10) TMI 102 - MADRAS HIGH COURT and followed subsequently by the Hon'ble Madras High Court in the case of CIT Vs. Shriram Ownership Trust 2020 (12) TMI 736 - MADRAS HIGH COURT and also by the Karnataka High Court in the case of Pragathi Krishna Gramin Bank 2018 (6) TMI 1283 - KARNATAKA HIGH COURT We find merit in the submissions made on behalf of the appellant that the amount of investment which yielded exempt income alone should be taken into consideration for the purpose of arriving at average value of investment as envisaged under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule. Accordingly, we restore the matter back to the file of Assessing Officer for the purpose of computing the amount of disallowance in the above mentioned manner.appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues:
- Disallowance under section 14A read with Rule 8D
- Method of computing disallowance under sub clause (iii) of sub-rule (2) of Rule 8D

Analysis:
1. The appellant, a company engaged in investment in shares and securities, appealed against the order of the ld. Commissioner of Income Tax (Appeal) for the assessment year 2013-14, challenging the disallowance of ?11,87,427 made by the Assessing Officer under section 14A read with Rule 8D. The Assessing Officer rejected the appellant's contention that no indirect expenditure was incurred to earn exempt income, resulting in the disallowance.

2. The appellant contended before the tribunal that only the average value of investment yielding no exempt income should be excluded while computing the disallowance under sub clause (iii) of sub-rule (2) of Rule 8D. The appellant relied on the decision of the Hon'ble Delhi High Court in ACB India Ltd. Vs. Assistant Commissioner of Income Tax, supporting their argument.

3. The tribunal considered the issue of computing the disallowance under sub clause (iii) of sub-rule (2) of Rule 8D, emphasizing that the applicability of section 14A of the Act was not under challenge. Referring to the decision of the Hon'ble Special Bench of ITAT, Delhi and various High Court decisions, the tribunal held that only the value of investment yielding exempt income should be considered for arriving at the average value of investment.

4. Based on the precedents cited, the tribunal found merit in the appellant's submissions and directed the Assessing Officer to compute the disallowance in the manner where only the investment yielding exempt income is taken into consideration for arriving at the average value of investment. Consequently, the tribunal partly allowed the appeal for statistical purposes, restoring the matter back to the Assessing Officer for computation as per the specified method.

5. In conclusion, the tribunal's decision focused on the correct method of computing the disallowance under sub clause (iii) of sub-rule (2) of Rule 8D, ensuring that only the value of investments yielding exempt income is considered. This ruling aligns with established legal precedents and provides clarity on the calculation of disallowances under section 14A read with Rule 8D.