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2020 (10) TMI 507 - AT - Income TaxAssessment u/s 14A r.w.r. 8D - HELD THAT - There should be no disallowance in view of the provision under Sec. 8D(2)(ii). Accordingly, we delete the addition and decided the issue in favour of the assessee. Further we notice that the investment to the tune of ₹ 65,05,859.23 is liable to be taken into consideration for the purpose of assessing the expenditure in view of the provision under Rule 8D (2)(iii) of the Rule and accordingly the expenditure has been assessed to the tune of ₹ 32,529-30. Those income which yielded exempt income is liable to be taken into consideration while application of provisions under Rule 8D(2)(iii) of the Rule Accordingly, we set aside the calculation did by the A.O as well as confirmed by the CIT(A) and restore the issue before the A.O to re-assess the expenditure to earn exempt income in view of the provision u/s 14A r.w. Rule 8D(2)(iii) of the Act.
Issues Involved:
1. Dismissal of appeal on technical grounds. 2. Disallowance under Rule 8D read with Section 14A of the Income Tax Act, 1961. 3. Reassessment of expenditure for earning exempt income. Issue-wise Detailed Analysis: 1. Dismissal of Appeal on Technical Grounds: The appellant contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in dismissing the appeal on technical grounds without considering the facts that the working given to the Assessing Officer (AO) under Rule 8D read with Section 14A was without prejudice. The appellant claimed that no expenditure was incurred for earning such income. The Tribunal did not explicitly address this issue in the detailed analysis, implying that the primary focus was on the substantive disallowance under Rule 8D and Section 14A. 2. Disallowance under Rule 8D read with Section 14A of the Income Tax Act, 1961: The assessee challenged the addition made under Section 14A read with Rule 8D. The assessee argued that its own funds were ?5.52 crores, whereas the investment in tax-free income securities was ?65,00,000/-, hence no interest disallowance should be made. The Tribunal considered the balance sheet as of 31.02.2013, which showed the assessee's own funds exceeded the investments. Citing the Bombay High Court decisions in Reliance Utility and Power Ltd. and CIT Vs. HDFC Ltd., the Tribunal noted that if interest-free funds are sufficient to meet investments, it can be presumed that investments were made from interest-free funds. Consequently, the Tribunal concluded that there should be no disallowance under Rule 8D(2)(ii). 3. Reassessment of Expenditure for Earning Exempt Income: The Tribunal observed that the investment of ?65,05,859.23 should be considered for assessing the expenditure under Rule 8D(2)(iii). The Tribunal found that the AO’s and CIT(A)’s calculations were incorrect and restored the issue to the AO to reassess the expenditure to earn exempt income in accordance with Rule 8D(2)(iii). Reasons for Delay in Pronouncement of Order: The Tribunal explained the delay in pronouncement due to the nationwide lockdown imposed on 24/03/2020 because of the COVID-19 pandemic. The lockdown led to unprecedented disruption of judicial work, which justified the delay. The Tribunal cited a similar decision in DCIT V/s JSW Limited, highlighting that the lockdown period should be excluded when computing the limitation period for pronouncing the order. Conclusion: The Tribunal allowed the appeal for statistical purposes, directing the AO to reassess the expenditure for earning exempt income under Rule 8D(2)(iii) while excluding the period of lockdown from the limitation period for pronouncement of the order.
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