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Facts
The assessee challenged the disallowance made under Section 14A read with Rule 8D by the Assessing Officer, which was sustained by the CIT(A). The disallowance calculation under Rule 8D(2)(iii) included all investments, irrespective of whether they yielded exempt income during the year. The matter had been previously restored by ITAT for fresh adjudication.
Held
The Tribunal, relying on the Delhi High Court decision in *Cargo Motors Private Limited vs DCIT*, held that for Section 14A disallowance under Rule 8D(2)(iii), only investments yielding exempt income should be considered. The Assessing Officer was directed to re-compute the disallowance based on this principle. Both appeals were allowed for statistical purposes.
Key Issues
Whether for computing disallowance under Section 14A read with Rule 8D(2)(iii), investments that did not yield exempt income should be included in the average value of investments.
Sections Cited
14A, 250, 143(3), 254, 8D, 8D(2)(iii)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI ANIKESH BANERJEE
O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER: Both these appeals filed by the assessee are directed against the different order of the First Appellate Authority passed u/s 250 of the Income Tax Act. Since similar issue on identical facts are involved in these appeals, therefore, both these appeals are adjudicated together by taking ITA 5970/M/2024 for A.Y. 2008-09 as a lead case and its finding will be applied mutatis mutandis wherever applicable.
ITA No. 5970/M/2024 (A.Y. 2008-09)
“1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of Rs. 15,35,446/- u/s 14A read with Rule 8D without appreciating the facts of the case.
& 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 2. Your appellant worked out the disallowance of Rs. 5,63,317/- as contemplated u/s 14A r.w.s. 8D by taking 0.5% of investment where dividend is earned.
3. On the facts and circumstances of the case and in law the CIT(A) erred in passing the order without giving any opportunity for hearing, hence the order is bad in law as the same is in violation of principles of natural justice.
4. Your appellant craves your leave to add, alter, amend, expand and/or delete any ground or grounds before the final disposal of the appeal.”
2. Fact in brief is that return of income declaring total income of Rs. 98,74,810/- was filed on 29.09.2008. The case was subject to scrutiny assessment and assessment was completed on 27.12.2010 by making addition of Rs. 15,35,446/- u/s 14A r.w.r. 8D of the I.T. Rules, 1962. The ld. CIT(A) has sustained the addition made u/s 14A of the Act made by the assessing officer. The ITAT vide order dated 11.11.2014 has restored the matter back to the file of the assessing officer for fresh adjudication after examination of the apportionment of the expenses. Thereafter, the assessing officer has completed assessment u/s 143(3) r.w.s. 254 of the Act on 30.09.2015 and computed the same disallowance u/s 14A r.w.r. 8D(2)(iii) after taking into consideration, the average of total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not for the purpose of disallowance.
3. The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer holding that for computing disallowance under Rule 8D(2)(iii), the average total investment of the assessee as appearing in the balance sheet on the first day and last day of the order irrespective of the fact whether
4. During the course of appellate proceedings before us, the ld. Counsel submitted that for the purpose of making disallowance of expenses u/s 14A average value of investment which only yielded exempt income during the year is to be considered. In this regard, the ld. Counsel has placed reliance on the decision of Hon’ble Delhi High Court in the case of Cargo Motors Private Limited vs DCIT 145 taxmann.com 641.
On the other hand, ld. DR supported the order of lower authorities.
Heard both the sides and perused the material on record. The solitary issue in ground of appeal filed by the assessee is related to working of disallowance under Rule 8D(2)(iii) of the Income Tax Rules, 1962. The assessing officer has computed disallowance under Rule 8D(2)(iii) after taking into account, the average of the total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not. We have perused the decision of the Hon’ble High Court of Delhi in the case of Cargo Motors Private Limited vs DCIT 145 taxmann.com 641 wherein it has been held that for the purpose of making disallowance of expenses u/s 14A as per Rule 8D only those investments were to be considered for computing average value of investment which yielded exempt income during the year. Therefore, we consider that action of the assessing officer for making disallowance as per section 14A r.w.r. 8D on considering those investments which has not yielded any exempt income is not & 5971/Mum/2024 Hindustan Candle Manufacturing Co. Pvt. Ltd. A.Y. 2008-09 & 2014-15 appropriate therefore, we direct the assessing officer to compute the disallowance only after taking into consideration the investment which yielded exempt income to the assessee. Therefore, the appeal of the assessee is allowed for statistical purposes.
ITA No. 5971/M/2024 (A.Y. 2014-15)
“1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the enhanced disallowance by learned AO of Rs. 51,37,565/- (Rs. 56,66,771/- disallowed by learned AO while appellant worked out disallowance at Rs. 5,29,206/- u/s 14A r.w.s. 8D).
On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming disallowance u/s 14A by ld. AO without considering the fact that total administration expenses are Rs. 32,59,791/- out of which your appellant himself disallowed Rs. 8,36,250/- and claimed only at Rs. 24,23,541/-.
On the facts and circumstances of the case and in law the CIT(A) erred in passing the order without giving any opportunity for hearing, hence the order is bad in law as the same is in violation of principles of natural justice.
4. Your appellant craves your leave to add, alter, amend, expand and/or delete any ground or grounds before the final disposal of the appeal.”
Since on identical issue on similar fact, we have directed the assessing officer to re-compute the disallowance u/s 14A r.w.r. 8D of the I.T. Rules after taking into consideration only the investment on which the assessee has earned exempt income vide for A.Y. 2008-09 as above. Therefore, applying the finding of the same this appeal of the assessee is also restored to the file of the assessing officer for computing the disallowance in the similar manner after taking into account only the investment which yielded exempt income therefore applying the finding mutatis
In the result, the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 04.02.2025.