2020 (9) TMI 905 - AT - Income Tax

Disallowance u/s 14A r. w. Rule 8D(2) (iii) - assessee failed to establish the nexus between that interest free funds with the investment resulting in exempt income - CIT-A deleted the addition - HELD THAT - CIT(A) has allowed the claim of the assessee on the basis of the decision of Hon ble ITAT in the assessee s own case for the A.Y.2009-10 to 2011-12. The finding of the Hon ble ITAT has been confirmed by Hon ble Bombay High Court. Taking into account all the facts and circumstances and also considering this fact that the issue has duly been covered by the assessee s own case decided by Hon ble ITAT for the A.Y. 2009-10 to 2011-12, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide these issue in favour of the assessee. Disallowance u/s 14A r.w. Rule 8D(2)(ii) in view of the Clause (f) to Explanation-1 to Section 115JB - HELD THAT - The issue has been decided on the basis of CIT Vs. Bengal Finance Investments Pvt. Ltd 2015 (2) TMI 1263 - BOMBAY HIGH COURT and ACIT vs. Vireet Investment (P.) Ltd 2017 (6) TMI 1124 - ITAT DELHI . Accordingly, it has been specifically held that the ground of disallowance computed u/s 14A cannot be imported to the computation of books of profit u/s 115JB of the Act. The facts are not distinguishable at this stage and no law contrary to the law relied upon the CIT(A) has been produced before us. Taking into account all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide this issue in favour of the assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D(2)(ii).
2. Restriction of disallowance under Section 14A read with Rule 8D(2)(iii) to 5% of the dividend income.
3. Deletion of disallowance under Section 14A read with Rule 8D(2)(ii) in the context of Clause (f) to Explanation-1 to Section 115JB of the Act.

Detailed Analysis:

Issue Nos. 1 & 2:
The revenue challenged the CIT(A)'s decision to partly allow the assessee's claim under Section 14A read with Rule 8D(2) and Rule 8D(2)(iii). The CIT(A) found that the assessee did not justify the allocation of 1% of expenses for maintaining investments, thus rejecting the assessee's administrative expense disallowance as insufficient. The CIT(A) referred to the Hon'ble ITAT's decision in the assessee's own case for AY 2009-10 to AY 2011-12, which was upheld by the Hon'ble Bombay High Court, and restricted the disallowance to 5% of the dividend income. The CIT(A) noted that the investments had not changed since 31.03.2010, and the assessee had sufficient interest-free funds to cover the investments, thus no disallowance was required under Rule 8D(2)(ii). Consequently, the ITAT upheld the CIT(A)'s decision, finding it consistent with previous rulings and judicial precedent.

Issue No. 3:
This issue pertained to the deletion of disallowance under Section 14A read with Rule 8D(2)(ii) in the context of Clause (f) to Explanation-1 to Section 115JB. The CIT(A) relied on the Bombay High Court's ruling in CIT vs. Bengal Finance & Investments Pvt. Ltd., which held that disallowance under Section 14A cannot be added to book profit for Section 115JB purposes. Additionally, the CIT(A) referenced the Special Bench of the Delhi Tribunal's decision in ACIT vs. Vireet Investment (P.) Ltd., which stated that the AO cannot adjust net profit for Section 115JB purposes except as specified in the Explanation to Section 115JB. The ITAT found no distinguishing facts or contrary law and upheld the CIT(A)'s decision, confirming that disallowance under Section 14A cannot be imported into the computation of book profits under Section 115JB.

Delay in Pronouncement of Order:
The delay in pronouncing the order was due to the nationwide lockdown imposed on 24/03/2020 due to the COVID-19 pandemic, which disrupted judicial work. The ITAT cited the Hon'ble Supreme Court's and Hon'ble Bombay High Court's orders extending limitations and interim orders due to the pandemic. The ITAT decided to exclude the lockdown period from the 90-day pronouncement requirement, deeming the delay justified under the exceptional circumstances.

Conclusion:
The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues, and pronounced the order on 06/07/2020 after considering the exceptional circumstances caused by the COVID-19 pandemic.