2021 (2) TMI 631 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - Disallowance made on the entire investments - HELD THAT - We observe that Rule 8D(2)(iii) is clear that disallowance should be made under the said rule on those investments, on which the assessee earns exempt income, but, not on the entire investments. In this connection, we refer to the decision in the case of Transport Corporation of India Ltd. 2016 (11) TMI 245 - ITAT HYDERABAD wherein directed to calculate the disallowance of expenditure under rule 8D(2)(iii) taking the average investment from which the exempt income is received. Following the above decision, we direct the AO to calculate the disallowance under rule 8D(2)(iii) in line with the above decision. The assessee is directed not to take any unnecessary adjournments for early disposal of the appeal. Needless to say that reasonable opportunity may be given to the assessee Accordingly, the grounds raised by the assessee in this regard are treated as allowed for statistical purposes.

Summary

Issues:
1. Disallowance of expenditure under rule 8D(2)(iii) for exempt income claimed u/s. 10(34) of the IT Act.

Analysis:
The appeal was filed against the order of the CIT(A) relating to AY 2013-14. The assessee, a State PSU, initially filed a return admitting taxable income under normal provisions and book profits. Subsequently, a revised return was filed, leading to scrutiny under CASS. The AO observed exempt income claimed u/s. 10(34) without disallowance under rule 8D. The AO applied rule 8D for disallowance and completed the assessment. The CIT(A) upheld the disallowance, considering the average value of investments. The assessee contended that disallowance should be made only on investments generating exempt income. The Tribunal referred to a previous case and directed the AO to recalculate the disallowance under rule 8D(2)(iii) based on investments generating exempt income, as per the guidelines provided in the previous case.

The Tribunal noted that rule 8D(2)(iii) requires disallowance on investments generating exempt income, not on all investments. Referring to a previous case, the Tribunal emphasized the need to calculate disallowance based on investments generating exempt income. The AO was directed to recalculate the disallowance in line with the previous case's guidance. The Tribunal allowed the appeal for statistical purposes, directing the assessee not to seek unnecessary adjournments for early disposal.

In conclusion, the Tribunal directed the AO to recalculate the disallowance under rule 8D(2)(iii) based on investments generating exempt income, following the guidelines from a previous case. The appeal was treated as allowed for statistical purposes, emphasizing the importance of timely proceedings without unnecessary adjournments.