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2022 (6) TMI 66 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - disallowance made at the ad hoc rate of 20% of the exempt income - HELD THAT - As no justification has been offered by Revenue for estimation of disallowance @ 20% of exempt income; and further, as the assessee has agreed to disallowance u/s 14A being computed in accordance with method prescribed under Rule 8D; in the specific facts and circumstances of the present appeal before us; we direct the AO to compute the disallowance u/s 14A of Income Tax Act in accordance with the method referred to in the Rule 8D of Income Tax Rules. The assessee has, as per the computation submitted, quantified the disallowance at Rs.1,244/- as mentioned earlier, in foregoing paragraph (B) of this order. The Assessing Officer is directed to verify this computation at the time of giving effect to this order. The Assessing Officer is further directed to provide reasonable opportunity to the assessee to explain the computation, and to make submissions, in case computation presented by the assessee s side in accordance with Rule-8D of Income Tax Rules is not accepted by the Assessing Officer.
Issues involved:
1. Disallowance under section 14A of the Income Tax Act. Analysis: (A) Background of the case: The appeal was filed by the Assessee against the appellate order of the Commissioner of Income Tax (Appeals). The original assessment order was passed in 2009, rectified in 2010, and included an addition under section 14A of the Income Tax Act. The matter was taken to the Income Tax Appellate Tribunal (ITAT), which set it aside to the Assessing Officer. A fresh order was passed in 2017, disallowing an ad hoc amount of Rs.4,10,295 under section 14A. (B) Arguments presented: - The Assessee agreed to the disallowance being made under section 14A in accordance with the computation prescribed under Rule 8D of the Income Tax Rules, despite Rule 8D not being applicable for the assessment year in question. - The Assessee quantified the disallowance at Rs.1,244 based on the computation under Rule 8D. - The Senior Departmental Representative supported the orders of the CIT(A) and the Assessing Officer but could not justify the ad hoc disallowance made by the Assessing Officer. (B.2) Tribunal's Decision: - The Tribunal found no justification for the ad hoc disallowance of 20% of exempt income made by the Assessing Officer. - The Assessee's agreement to compute the disallowance under section 14A in accordance with Rule 8D was considered reasonable. - The Tribunal directed the Assessing Officer to compute the disallowance under section 14A in accordance with Rule 8D, as agreed by the Assessee, and to verify the computation of Rs.1,244 provided by the Assessee. (C) Conclusion: The appeal was partly allowed, and the Assessing Officer was directed to compute the disallowance under section 14A in line with Rule 8D. The Assessee was to be given a reasonable opportunity to explain the computation, and the appeal was disposed of accordingly. This comprehensive analysis of the judgment highlights the key issues, arguments presented, and the Tribunal's decision, ensuring a detailed understanding of the case.
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