2021 (9) TMI 596 - AT - Income Tax

Disallowance u/s 14A - addition in respect of indirect expenses under clause (iii) of Sub-rule (2) of Rule 8D of the Rules - HELD THAT - Methodology of computation of average value of investment is not in accordance with the provisions of Rule 8D of the Rules prevalent during the relevant period. Hence, we remand the matter back to the file of the AO with a direction to compute the amount of disallowance under clause (ii) of Sub-rule (2) of Rule 8D in accordance with the provisions of Rules as applicable at the relevant point of time. Accordingly, this ground of appeal stands partly allowed. Addition on account of interest u/s. 244A - Addition being interest on income tax refund for the assessment year 2012-13 as the same was not offered to tax by the appellant society on account of ignorance of this fact as the interest refund was adjusted against the tax liability - HELD THAT - Admittedly, the interest on income tax refund for the assessment year 2012-13 was received by the appellant society during the previous year relevant to the assessment year under consideration. The fact that such interest was adjusted against the outstanding demand of the appellant is immaterial as the adjustment of refund also amount to receipt of the interest. Therefore, we uphold the findings of the lower authorities on this issue. Accordingly, this ground of appeal filed by the assessee is dismissed.

Summary

Issues:
1. Disallowance under section 14A of the IT Act
2. Addition of interest under section 244A of the IT Act

Issue 1: Disallowance under section 14A of the IT Act
The appellant, a cooperative society engaged in banking, challenged the disallowance made by the Assessing Officer under section 14A of the IT Act for the assessment year 2013-14. The ld. CIT(A) partially allowed relief but retained a disallowance of &8377; 12,11,042. The appellant appealed against this decision, specifically contesting the addition related to indirect expenses under clause (iii) of Sub-rule (2) of Rule 8D of the Rules. The appellant argued that the computation of average value of investment by the Assessing Officer did not align with the relevant provisions of Rule 8D during the assessment period. The tribunal agreed with the appellant, remanding the matter back to the Assessing Officer to calculate the disallowance under clause (iii) of Sub-rule (2) of Rule 8D in accordance with the Rules applicable at the relevant time. Consequently, this ground of appeal was partly allowed.

Issue 2: Addition of interest under section 244A of the IT Act
The Assessing Officer added &8377; 3,38,468 as interest under section 244A of the IT Act, pertaining to interest on income tax refund received by the appellant for the assessment year 2012-13. The appellant contended that the interest refund was adjusted against the tax liability, leading to ignorance of the interest receipt. However, the tribunal upheld the lower authorities' decision, stating that the adjustment of the refund also constituted receipt of interest. As a result, the ground of appeal filed by the appellant on this issue was dismissed.

In conclusion, the tribunal partially allowed the appeal for statistical purposes, remanding one issue back to the Assessing Officer while upholding the addition of interest under section 244A of the IT Act.