2023 (12) TMI 58 - AT - Income Tax

Addition u/s. 14A r.w.r. 8D(ii) - As per AO assessee not followed the methodology as contemplated under Rule 8D(2) of the Rules, made disallowance at 1% on whole investment under Rule 8D(2)(iii) - HELD THAT - We note that the assessee calculated average investment at Rs. 1,07,12,445/- which have yielded the dividend income of Rs. 74,52,725/-, but however, the AO did not satisfy with the said submissions as made by the assessee to consider those investments which yielded exempt income for the purpose of computing disallowance of expenditure. The assessee reiterated the same submissions before the CIT(A), but however, CIT(A) confirmed the order of AO. Before us, the ld. AR drew our attention to the order of Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI requested to remand the issue to the file of AO for its fresh consideration with a direction to take into account those investments which were yielded exempt income for the purpose of disallowance of expenditure. It is settled principle that those investments which yielded income shall be considered for the purpose of computing expenditure in relation to exempt income. DR did not dispute the finding of Special Bench of Delhi Tribunal, we deem it proper to remand the issue to the file of AO to make disallowance considering those investments which yielded exempt income for its fresh consideration. The assessee is liberty to file evidences, if any, in support of its claim. Thus, the grounds raised by the assessee are allowed for statistical purpose.

Summary

Issues involved:
The appeal by the assessee against the order passed by the National Faceless Appeal Centre for assessment year 2018-19.

Details of the Judgment:

Issue 1: Disallowance under Section 14A r.w.s. 8D(ii) of the Rules
The only issue to be decided was whether the addition made by the AO under Section 14A r.w.s. 8D(ii) of the Rules was justified. The assessee earned dividend income which was claimed as exempt income. The AO disallowed an amount for expenditure incurred towards earning the dividend income. The AO adopted the methodology under Rule 8D(2) of the Rules and made a disallowance at 1% on the whole investment. The assessee's submissions were not accepted by the AO or the CIT(A). The Special Bench of ITAT, Delhi was referred to by the assessee, and it was requested to remand the issue to the AO for fresh consideration. The Tribunal agreed with the assessee and remanded the issue to the AO to consider investments that yielded exempt income for the purpose of disallowance of expenditure. The assessee was given liberty to file evidences in support of its claim. The grounds raised by the assessee were allowed for statistical purposes.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, and the issue of disallowance under Section 14A r.w.s. 8D(ii) of the Rules was remanded to the AO for fresh consideration.