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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRIR.K. PANDA & SHRI N. K. CHOUDHRY
This appeal has been preferred by the Assessee against the order dated 31.05.2017 impugned herein passed by the ld. Commissioner of Income Tax (Appeals), Ghaziabad (in short “Ld. Commissioner”) whereby, the ld. Commissioner upheld the addition of Rs. 25,85,853/- made by the AO on account of expenditure of Rs. 36,65,344/- u/s 14A of the Income Tax Act (in short „ the Act‟) read with Rule 8D of the Income Tax Rules 1962 (in short „ the Rules‟.
In this case, the Assessee while filling revised return of income itself disallowed the amount of Rs. 10,79,491 u/s 14A of the Act . Thereafter the AOdisallowed the amount of Rs. 36,65,344/- u/s 14A of the Act read with Rule 8D of the Rules on account of expenditure incurred qua earning of exempt income on proportion basis and made the addition of Rs. 25,85,853/- { Rs. 36,65,344/- -10,79,491 } u/s 14A of the Act .
The said addition of Rs. 25,85,853/-was challenged by the Assessee before the ld. Commissioner, who upheld the same by dismissing the appeal of the Assessee, against which the Assessee is in appeal before us and raised following ground of appeal:-
On the facts and in the circumstances of the case and in law, the Learned CIT (A), has erred in upholding the disallowance of a sum of Rs.25,85,853/- under the provisions of section 14Aof Income tax 1961 r.w. Rule 8D(2)(iii) of the I.T. Rules, 1962 without appreciating the absence of primary satisfaction as to how the suo-moto disallowance made by the appellant is not correct, which is a condition precedent for making disallowance as per section 14Aofthe Act.
4. Heard the parties and perused the material on record. The Assessee before us contended that as per Act, in calculating the disallowance at 0.5% of average value of investments as per clause (iii) of Rule 8 D (2) of the Rules, a proper satisfaction in terms of Section 14A (2) of the Act and Rule 8 (D) of the Rules is must , which is not done this case and therefore the addition under challenge is liable to be set aside or alternatively the disallowance can only be made on the investment which has yielded any exempt income but not otherwise.
4.1 On the contrary the ld. DR vehemently relied upon and supported the orders passed by the authorities below.
4.2 We observe that the Hon‟ble Delhi High Court (jurisdictional) in the case of ACB Investment P Ltd. v. ACIT ( 2015) 374 ITR 108 (Delhi) Page | 2 (HC)dealt with the identical issue and held that for making disallowance u/s u/s 14A of the Act read with Rule 8D(iii) of the Rules, the value of tax exempt investments should be considered instead of total investments for adopting average value of investments of income which is not part of the total income. In simple words, while making disallowance under section 14A of the Act read with Rule 8D(iii) of the Rules, only the average of investments which have yielded exempt income are to be considered but not otherwise, hence, respectfully following the decision of the Hon‟ble jurisdictional High Court, we are inclined to allow the appeal of the Assessee.
Consequently the case is remanded to the file of the AO to consider the average value of those investments onlywhich have yielded theexempt income and recompute the disallowance accordingly, suffice to say while affording reasonable opportunity of being heard to the Assessee.
5 In the result, appeal filed by the Assessee is allowed for statistical purposes.