2021 (10) TMI 282 - AT - Income Tax

Disallowance u/s 14A r.w.s. 8D - AR submitted that the Revenue should have computed disallowance under Rule 8D by considering the average of only those investment on which the exempt income was received by the assessee company instead of total investments - HELD THAT - It is pertinent to note that the assessee has received the exempt income being dividend income and exempt long term capital gain. This fact was not disputed by the Revenue Authorities. Therefore, the applicability of Rule 8D should have been restricted to that extent only. Hence, we direct the Assessing Officer to restrict the disallowance on the amount as per Section 14A read with Rule 8D. The appeal of the assessee is partly allowed.

Summary

Issues:
Disallowance under section 14A read with Rule 8D for exempt income received.

Analysis:
The appellant, a Non-Banking Financial Corporation, challenged the order passed by CIT(A) for Assessment Year 2014-15, concerning the disallowance of ?53,36,753 under section 14A read with Rule 8D. The Assessing Officer had added expenses incurred for earning exempt income and notional interest on loans/advances. The CIT(A) partly allowed the appeal. The appellant argued that the disallowance should have been based on the actual exempt income of ?4,77,220 received, citing relevant High Court decisions. The Revenue Authorities did not dispute the actual exempt income received. After hearing both parties, the Tribunal directed the Assessing Officer to restrict the disallowance to the actual exempt income of ?4,77,220 as per Section 14A read with Rule 8D. Consequently, the appeal was partly allowed.

In this case, the main issue revolved around the computation of disallowance under section 14A read with Rule 8D concerning exempt income received by the appellant. The appellant contended that the disallowance should be based on the actual exempt income received rather than the total investments. The Tribunal agreed with the appellant's argument, emphasizing that the applicability of Rule 8D should be limited to the actual exempt income received, which was not disputed by the Revenue Authorities. Therefore, the Tribunal directed the Assessing Officer to restrict the disallowance to the extent of the actual exempt income of ?4,77,220. This decision was supported by relevant High Court precedents cited by the appellant, ensuring a fair and accurate computation of the disallowance under Section 14A read with Rule 8D.

Overall, the Tribunal's decision provided clarity on the computation of disallowance under section 14A read with Rule 8D by emphasizing the importance of considering the actual exempt income received by the assessee. By restricting the disallowance to the extent of the actual exempt income of ?4,77,220, the Tribunal ensured a more precise and reasonable assessment, in line with the principles established in relevant judicial decisions. The judgment highlighted the significance of accurately determining disallowances related to exempt income, thereby promoting fairness and adherence to legal provisions in tax assessments.