2021 (8) TMI 605 - AT - Income Tax

Disallowance u/s.14A r.w.r. 8D - assessee has paid interest on certain loans which are borrowed for specific purposes. Therefore, if the assessee is able to prove utilization of loans for specific purposes, then interest relatable to said loans cannot be included for computation of disallowances under Rule 8D(2)(ii) of Income Tax Rules, 1962 - HELD THAT - Assessee claimed that while computing disallowance under Rule 8D(2)(iii), the Assessing Officer has included investments made in overseas subsidiaries and income from which is taxable under Indian laws. We find that it is a well settled principles of law that dividend earned from overseas investments is taxable in Indian law, therefore, for the purpose of computing other expenses under Rule 8D(2)(iii), those investments need to be excluded. It is well settled principles of law by the decision in the case of ACIT Vs. Vireet Investments Pvt .Ltd. 2017 (6) TMI 1124 - ITAT DELHI that only those investments which yielded exempt income for the year needs to be considered for computation of disallowance of other expenses. The assessee has filed working explaining computation of disallowance u/s.14A r.w. Rule 8D of the Income Tax Rules, 1962. The said computation was not available to the AO at the time of assessment proceedings - we are of the considered view that the issue needs to go back to the file of the AO for re-consideration in light of revised working filed by the assessee. Hence, we set aside the appeal to the file of AO and direct him to recompute disallowance of expenses relatable to exempt income u/s.14A of the Act in accordance with our directions given herein above.

Summary

Issues:
- Condonation of delay in filing appeal
- Disallowance under section 14A r.w.Rule 8D

Condonation of delay in filing appeal:
The delay in filing the appeal was attributed to a mistake by the Accountant handling the papers, and the assessee sought condonation of the delay. The Departmental Representative opposed the condonation, claiming the reasons were not reasonable. The Tribunal, after considering the reasons, found them to be reasonable and condoned the delay, allowing the appeal to be admitted for adjudication.

Disallowance under section 14A r.w.Rule 8D:
The assessee, engaged in providing logistic services, had exempt income but did not make suo-moto disallowance of any expenditure related to it. The Assessing Officer invoked Rule 8D to compute disallowance under section 14A, as the assessee failed to provide documentary evidence of not incurring any expenditure related to exempt income. The CIT(A) restricted the disallowance to the extent of exempt income. The assessee argued that interest expenses not related to exempt income and investments in overseas subsidiaries should be excluded from disallowance. The Tribunal agreed, directing the Assessing Officer to recompute the disallowance based on the revised working filed by the assessee, setting aside the appeal to the Assessing Officer for reconsideration.

In conclusion, the delay in filing the appeal was condoned, and the disallowance under section 14A r.w.Rule 8D was directed to be recomputed by excluding certain expenses and investments. The assessee's appeal was treated as allowed for statistical purposes, while the Revenue's appeal was dismissed as not maintainable due to the tax effect falling below the prescribed limit.