2022 (8) TMI 668 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - AO has made disallowance as per 8D(ii) of the Act by considering the 1% of the average investments as held by the assessee - HELD THAT - Only those investments have to be considered in which the assessee has earned/yielded exempt income which does not form part of the total income during the relevant previous year, whereas, it appear that the AO has considered the entire investments for want of not submitting details by the assessee. Assessee also did not furnish details of the investments made on which the assessee has received exempt income as required under Rule 8D(2)(ii) . Accordingly, we direct to the assessee that he will submit the details of the investments in which the assessee has received exempt income during the assessment year and the AO shall calculate the disallowance as per Rule 8D(2)(ii) for the relevant assessment year. Rule 8D(2)(ii) has been amended by the IT (Fourteenth Amdt.) Rules 2016 w.e.f 2/6/2016 , which has been cited supra. Considering all remit this issue to the file of the AO for re-computation of disallowance u/s14A of the Act r.w. Rule 8D(2)(ii). The assessee is directed to provide the necessary details/ documents to substantiate his case and not to seek unnecessary adjournment for early disposal of the case. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Difference between assessed income and returned income.
2. Disallowance under Section 14A of the Income Tax Act.
3. Disallowance of claim of set-off of short-term capital gain with brought forward short-term capital loss.
4. Alleged lack of proper opportunity for hearing.

Detailed Analysis:

1. Difference between Assessed Income and Returned Income:
The primary issue raised by the assessee was the difference between the assessed income of Rs. 29,89,35,760/- and the returned income of Rs. 29,23,79,900/- for the assessment year 2017-18. The difference of Rs. 65,55,860/- was due to disallowances made by the Assessing Officer (AO) under Section 14A of the Income Tax Act and the disallowance of the claim of set-off of short-term capital gain with brought forward short-term capital loss.

2. Disallowance under Section 14A of the Income Tax Act:
The AO disallowed Rs. 44,82,700/- under Section 14A, which pertains to expenses incurred towards earning exempt income. The assessee had investments in subsidiary companies and tax-free bonds amounting to Rs. 17,48,05,000/- and current investments of Rs. 22,77,94,204/- across multiple funds, earning a dividend income of Rs. 98,87,744/-. The AO applied Rule 8D(ii) of the IT Rules to compute the disallowance, considering 1% of the average investments. The assessee argued that its own funds were sufficient for the investments and that the disallowance was unjustified. However, the AO noted that the assessee did not furnish the required details, leading to the disallowance based on the investment values from the balance sheet. The Tribunal directed the assessee to provide details of investments that yielded exempt income and remitted the issue back to the AO for re-computation of the disallowance as per Rule 8D(2)(ii).

3. Disallowance of Claim of Set-off of Short-term Capital Gain with Brought Forward Short-term Capital Loss:
The AO disallowed the assessee's claim of set-off of short-term capital loss of Rs. 20,78,371/- with brought forward short-term capital loss from AY 2011-12. The AO observed that the assessee had a long-term capital loss of Rs. 37,67,616/- and a short-term capital gain of Rs. 2,08,090/- in AY 2011-12. As per Section 74 of the Act, long-term capital loss can only be set off against long-term capital gain. Consequently, the AO disallowed the set-off claim, and the Tribunal upheld this disallowance.

4. Alleged Lack of Proper Opportunity for Hearing:
The assessee contended that the CIT(A) did not provide a proper opportunity for hearing, violating the principles of natural justice. However, the Tribunal noted that the appeal was instituted on 27.12.2019 and the order was passed on 18.3.2021. The assessee failed to present any material evidence to substantiate the claim of inadequate opportunity. Therefore, this ground was dismissed by the Tribunal.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to re-compute the disallowance under Section 14A as per Rule 8D(2)(ii) after considering the details of investments yielding exempt income provided by the assessee. The disallowance of the claim of set-off of short-term capital gain with brought forward short-term capital loss was upheld, and the ground regarding the lack of proper hearing opportunity was dismissed.

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