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TMI Blog2020 (12) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... The instant appeal under Section 260A of the Income Tax Act, 1961 ("the Act") is directed against the common order dated 12.06.2019 passed by the Income Tax Appellate Tribunal ("ITAT"), whereby the learned ITAT has decided the issues, urged in the present appeal, in favour of the Respondent-Assessee. In Appeal No. 2368/Del/2016, preferred by the Respondent-Assessee, the learned ITAT has accepted Respondent-Assessee's contention with respect to the addition pertaining to the prior period income; and in Appeal No. 3299/Del/2016, filed by the Appellant-Revenue, the learned ITAT has restricted the disallowance, under Section 14A read with Rule 8D (2) (iii), in respect of expenditure incurred in relation to income not includible in the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT is justified in restricting the disallowance to only 0.5% of average investment income of Rs. 1,33,74,000/- in terms of section 14A r. w. Rule 8D(2)(iii) as against Rs. 9,69,57,875/- disallowed u/s∙ 14A r. w. Rule 8D(2)(ii) and (iii) ? b) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT has erred in deleting the addition of Rs. 3,36,80,000/- made by the assessment officer on account of prior period income? c) Whether the order passed by ITAT is bad in law and on facts?" 6. Mr. Sharma argues that the learned ITAT was not justified in restricting the disallowance in terms of Section 14A/w Rule 8D(2)(iii) only to the extent of 0.5% of average investment income of Rs. 1,33,74,000/-as against Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the AO on account of prior period income. The direction of the learned ITAT to net off prior period income and expenditure, and to tax only the net income is erroneous as it results in allowance of Rs. 1.80 Crores to the Respondent-Assessee without verification by the AO as to whether such expenses had actually crystallized or not. 7. We have duly considered and reflected upon the submissions advanced by Mr. Sharma. The records reveal that the AO made disallowance under Section 14A read with Rule 8D amounting to Rs. 9,69,57,875/- and made addition accordingly. In appeal before the CIT (A) it was restricted to 0.5% of the average investment income of Rs. 1,33,74,000/- as against Rs. 9,69,57,875/-. The learned ITAT considered the challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. However, as regards the disallowance under rule 8D(2)(iii), being 0.5% of the average investments (income from which is exempt), the undersigned does not agree with the order of my predecessor that no administrative expenses were incurred in connection with such investments. In a large organisation like appellant, the investments needs to be regularly monitored and man hours of staff are used apart from other administrative expenses. Therefore, the appellant's claim that no such expenditure was incurred is not correct. Once it is held that the claim of the appellant is not correct, the only way to estimate the same, is under rule 8D (2)(iii) being 0. 5% of the average investments income from which, is exempt. The AO has worked out, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred is not correct. In these circumstances, expenditure was to be estimated under Rule 8D(2)(iii) being 0.5% of the average investment income which is exempt. It was noticed that value of average investment had been calculated as the average of total investments, mentioned in Schedule F. However, the CIT (A) noted that since all the investments mentioned in Schedule F do not yield exempt income, disallowance under Section 14A read with Rule 8D(2)(iii) has been restricted only to 0.5% of the average investment income which is exempt, irrespective of whether such exempt income was received during AY 2011-12. This approach has been upheld by the learned ITAT. We do not find any perversity in the same or find any reason to entertain the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Thus, the case laws referred by the Ld. AR are apt in the present case. The Assessing Officer as well as the CIT(A) ignored these factual and legal aspects and were not correct in making the entire addition without netting off. We, therefore, remand back this issue with the direction to the Assessing Officer to net off prior period income and prior period expenditure and only tax the net income accordingly. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, Ground No.4 of the Assessee's appeal is partly allowed for statistical purpose." 10. On this issue, since factual aspects have to be verified, the learned ITAT has remanded back this issue with a direction to the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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