2018 (6) TMI 603 - AT - Income Tax

Disallowance u/s 14A on account of dividend income - as submitted that the dividend received by assessee from OMIFCO, Oman is chargeable to tax in India under the head income from other sources - rebate of tax has been allowed to assessee from the total taxes in terms of S.90(2) r.w. Article 25 of Indo-Oman DTAA - Held that - As observed that it is a recurring issue from the preceding A.Ys and it has been remitted to Ld.AO to examine and verify the average value of investments after excluding the investment in OMIFCO, Oman under Rule 8D(2)(iii). We therefore do not find any infirmity in the observations of CIT(A) and the same is upheld. - Decided in favor of assessee.

Summary

Issues:
1. Disallowance of expenses under section 14A relating to exempt income.
2. Exclusion of investments in OMIFCO, Oman for computing disallowance under section 14A.

Analysis:

Issue 1: Disallowance of expenses under section 14A relating to exempt income
The case involved the disallowance of an amount under section 14A of the Income Tax Act, 1961, made by the Assessing Officer (AO) in relation to exempt income claimed by the assessee. The AO disallowed an amount under section 14A read with Rule 8D, which was challenged by the assessee before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) confirmed the disallowance made by the AO. However, the assessee appealed further to the Income Tax Appellate Tribunal (ITAT), which remitted the matter back to the AO for re-examination based on a decision of the Mumbai High Court. The AO considered the submissions of the assessee and computed the expenses under section 14A, including investments in OMIFCO, Oman. The CIT(A) deleted the investments made in Oman Company for the purpose of computing disallowance under section 14A read with Rule 8D. The Tribunal upheld the CIT(A)'s decision, dismissing the appeal filed by the Revenue.

Issue 2: Exclusion of investments in OMIFCO, Oman for computing disallowance under section 14A
The Revenue contended that the assessee was receiving relief under the Double Taxation Avoidance Agreement (DTAA) with Oman on the dividend income received from OMIFCO, Oman. However, the assessee argued that investments made in OMIFCO, Oman should be excluded for computing the disallowance under section 14A read with Rule 8D. The assessee relied on previous decisions and provisions of the Act and DTAA to support their contention. The Tribunal examined the submissions and records presented by both parties. It noted that the issue had been recurring in previous assessment years and had been remitted to the AO for verification. The Tribunal found no infirmity in the CIT(A)'s observations and upheld the decision to exclude investments in OMIFCO, Oman for computing the disallowance under section 14A. Consequently, the appeal filed by the Revenue was dismissed.

In conclusion, the Tribunal's judgment upheld the exclusion of investments in OMIFCO, Oman for computing the disallowance under section 14A, based on the provisions of the Act and DTAA. The decision provided clarity on the treatment of exempt income and expenses under section 14A, emphasizing the importance of considering relevant legal provisions and previous rulings in such matters.