2021 (2) TMI 933 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - assessee has claimed deduction of expenses in relating to income which is exempt from tax - whether the dividend income earned from overseas joint-venture OMIFCO-OMAN can be subjected to disallowance under section 14A - assessee had received dividend income from its overseas joint-venture OMIFCO-OMAN - According to the AO, the assessee is effectively not paying any tax on this income either in the source country or in India and thus dividend income for all purposes is exempted from tax - HELD THAT - Tribunal in the case of the assessee for assessment years 2008-09 2018 (5) TMI 1035 - ITAT DELHI wherein the Tribunal has decided to exclude the investment in OMIFCO-Oman for the purpose of the computing disallowance in terms of Rule 8D(2)(iii) of the Rules. Dividend income from M/s OMIFCO-Oman is not in the nature of the exempted income, respectfully following the finding of the Tribunal, we uphold the finding of the Ld. CIT(A) of computing disallowance under section 14A of the Act after excluding the dividend income from M/s OMIFCO-Oman. We do not find any infirmity in the order of the Learned CIT(A) on the issue in dispute, and accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed.

Summary

Issues Involved:
1. Deletion of disallowance under section 14A of the Income-tax Act, 1961.
2. Inclusion of dividend income from overseas joint-venture OMIFCO-OMAN in exempt income for disallowance computation.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A of the Income-tax Act, 1961:

The appeal concerns the deletion of a disallowance of ?835.9 lakhs made by the Assessing Officer (AO) under section 14A of the Income-tax Act, 1961. The AO initially made a disallowance of ?4,21,43,45,000/- invoking Rule 8D of the Income-tax Rules, 1962. The matter was remanded by the Tribunal to the AO for reconsideration in light of the decision in Maxopp Investment Vs CIT (2012) 347 ITR 272 (Del). The AO, in the reassessment, made a proportionate disallowance of ?9,10,16,000/- based on the formula:

\[ \text{Disallowance} = \left( \frac{\text{Expenses incurred by the assessee (relatable to earning dividend income)}}{\text{Total Revenue}} \right) \times \text{Exempt Dividend Income} \]

The AO included dividend income of ?113,86,96,340/- from OMIFCO-OMAN in exempt income. The CIT(A) reduced the disallowance to ?74.26 lakhs by excluding this dividend income, following the precedent set in the assessee's case for earlier years.

2. Inclusion of Dividend Income from Overseas Joint-Venture OMIFCO-OMAN in Exempt Income for Disallowance Computation:

The primary contention was whether the dividend income from OMIFCO-OMAN should be considered exempt for the purpose of section 14A disallowance. The AO argued that the assessee effectively paid no tax on this income either in Oman or India, making it exempt. However, the CIT(A) and the Tribunal in previous assessments held that this income should not be considered exempt for section 14A purposes.

The Tribunal, referencing its decision for assessment years 2008-09, reiterated that investments not yielding income during the year should not be included for disallowance under Rule 8D(2)(iii). The Tribunal noted that the dividend from OMIFCO-OMAN was taxable in India, and relief under section 90 of the Act read with the DTAA with Oman did not render it exempt. Thus, the Tribunal upheld the CIT(A)'s decision to exclude this dividend income from the disallowance computation under section 14A.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s exclusion of the dividend income from OMIFCO-OMAN in the disallowance computation under section 14A. The Tribunal found no infirmity in the CIT(A)'s order and upheld it, ruling that the dividend income from OMIFCO-OMAN is not exempt for the purpose of section 14A disallowance. The appeal of the Revenue was dismissed.

Order Pronounced:

The order was pronounced in the open court on 6th January 2021.