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TMI Blog2021 (1) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ting disallowance under rule 8D(2)(iii) should include only those investments from which the assessee has earned exempt income during the year - CIT (A) has rejected the plea of the assessee holding that the same cannot be accepted in view of the decision of the Special Bench of the ITAT, Delhi in the case of ACIT and another vs. Vireet Investments Pvt [2017 (6) TMI 1124 - ITAT DELHI] - Under rule 8D(2)(iii) disallowance is made equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year - AO has brought on record the fact that the assessee has worked out 20% of the time of two employees out of total strength of 90 employees of head office only as expenses attributable to investment activity and has not provided any justification for such allocation. Hence since the AO had computed the disallowance under rule 8D(2)(iii), the Ld. CIT(A) has rightly upheld the action of AO in applying Rule 8D(2)(iii) of the Rules, for determining disallowance. However, the Ld. CIT(A) has rejected the contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (DR) ORDER PER RAM LAL NEGI, JM These are the cross appeals filed by the assessee and the revenue against the order dated 26.03.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-10, Mumbai, which pertains to assessment year 2014- 15, whereby the Ld. CIT (A) has partly allowed the appeals filed by the assessee against assessment order passed u/s 143 (3) the Income Tax Act, 1961 (for short the Act ). 2. Brief facts of the case are that the assessee company engaged in the business of manufacturing and sale/trading of pharmaceutical formulations, dietetic etc., filed its return of income for the assessment year under consideration declaring total income of ₹ 153,80,35,775 under the normal provisions of the Act and ₹ 116,76,68,142/- under section 115JB of the Act. Accordingly, AO passed assessment order u/s 143 (3) of the Act determining the total income at ₹ 156,39,12,276/- under the normal provisions of the Act and ₹ 119,55,15,733/- under section 115JB (2)of the Act, inter alia making addition on account of additional disallowance of ₹ 2,58,76,501/- u/s 14A of the Act. Further, the assessee filed revised statement of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. counsel relied on the decision of the special Bench of the Delhi Tribunal in the case of ACIT and another vs. Vireet Investments Pvt. Ltd. 188 TTJ 0001 (Del) (SB) to substantiate the contention of assessee. 5. On the other hand, the Ld. departmental representative submitted that since the AO had computed the disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules, the Ld. CIT(A) ought to have confirmed the addition made by the AO. However, in the present case the Ld. CIT(A) has directed the AO to exclude investments made by the assessee in growth scheme of Mutual Fund for the purpose of computing average investment for working disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules. The Ld DR further submitted that the revenue has challenged the action of the Ld. CIT(A) by filing cross appeal. In view of the aforesaid facts, the Ld. DR submitted that the impugned order may be set aside and the findings of the AO may be restored. 6. We have heard the rival submissions of the parties and perused the material on record in the light of the rival contention of the parties. Vide ground No 1 and 2, the assessee has challenged the action of the Ld. CIT(A) in affirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(iii), the Ld. CIT(A) has rightly upheld the action of AO in applying Rule 8D(2)(iii) of the Rules, for determining disallowance. However, the Ld. CIT(A) has rejected the contention of the assessee that only those investments from which exempt income has been earned during the year may be included for the purpose of determining disallowance under rule 8D(2)(iii) of the Rules by following the decision of the special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra) 9. We notice that the Ld. CIT (A) has decided this issue contrary to the decision of the Special Bench of the Delhi Tribunal. The Special Bench has categorically held in the said case that while computing disallowance under Rule 8D(2)(iii), only those investments are required to be taken into consideration which yielded exempt income during the year. The relevant para of the findings of the Tribunal reads as under: 11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year. 10. Hence, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd., ITA No. 857/Mum/2013 , the Ld. CIT (A) has wrongly directed the AO to exclude the same from book profit u/s 115JB. The Ld. DR further relied on the decision of the Mumbai Tribunal in the case of DCIT vs. Viraj Profiles Ltd . 64 taxmann.com 52 (Mumbai) in support of his contention. 4. On the other hand, the Ld. counsel for the assessee submitted that this issue is covered in favour of the assessee by the Judgment of the Hon ble Bombay High Court in the case of CIT vs. Bengal Finance Investments Pvt. Ltd. ITA No. 337 of 2013, in which the Hon ble Court has held that an amount disallowed u/s 14A of the Act cannot be added to arrive at book profit for the purposes of section 115JB of the Act. The Ld. counsel further pointed out that the Special Bench of the Delhi Tribunal in the case of ACIT vs. Vireet Investments P. Ltd. 82 taxmann. Com 415 has held that disallowance computed u/s 14A cannot be added to the book profit. 5. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties. As pointed out by the Ld. counsel, this issue is covered in favour of the assessee by the judgment of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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