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Facts
The assessee, engaged in trading equity shares and real estate, filed a nil income return. The Assessing Officer made an addition of Rs. 3,99,184/- under Section 14A read with Rule 8D for expenses related to exempt income, which was upheld by the Ld. Addl./JCIT(A). The assessee argued that its own funds were significantly more than investments, and no borrowed funds were diverted.
Held
The Tribunal, relying on the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., held that only investments yielding exempt income during the year should be considered for computing the average value for disallowance under Section 14A read with Rule 8D. The matter was restored to the Assessing Officer to verify the investments that yielded exempt dividend income for a fresh computation.
Key Issues
Whether disallowance under Section 14A read with Rule 8D should be computed based on all investments or only those investments that yielded exempt income during the relevant assessment year.
Sections Cited
14A, 8D, 139(1), 143(1), 143(2), 142(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
This appeal filed by the assessee is directed against the order dated 11.11.2024 of the Ld. Addl / JCIT(A)-11, Delhi relating to assessment year 2015- 16.
Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. Addl / JCIT(A) in confirming the disallowance of Rs.3,99,184/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules’).
Facts of the case, in brief, are that the assessee is a company engaged in business activities that include trading in equity shares and real estate through a partnership. It filed its return of income u/s 139(1) of the Act on 01.10.2016 declaring Nil income. The return was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny through CASS. Accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details. The Assessing Officer passed the order u/s 143(3) of the Act on 28.12.2017 by making addition of Rs.3,99,184/- u/s 14A read with Rule 8D on the ground that no disallowance u/s 14A was made in the return although the assessee has huge investments. The explanation of the assessee that its own funds are more than fifteen times the investment in shares and that no part of borrowed funds are diverted for investment in shares, was rejected by the Assessing Officer.
In appeal the Ld. Addl / JCIT(A) upheld the action of the Assessing Officer.
Aggrieved with such order of the Ld. Addl / JCIT(A), the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee at the outset referring to the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 taxmann.com 415 (Delhi Tribunal) (SB) submitted that only those investments are to be considered for the purpose of computing the average value of investment which yielded exempt income during the year. He accordingly submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to verify the investments which have yielded exempt income for determining the average value of investments.
The Ld. DR on the other hand fairly conceded that the issue stands decided by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 taxmann.com 415 (Delhi Tribunal) (SB). Therefore, he has no objection if the matter is restored to the file of the Assessing Officer with a direction to verify all the investments for considering the average value of the investments which yielded exempt dividend income.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only issue to be decided is regarding the computation of disallowance u/s 14A read with Rule 8D. We find the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. (supra) has held that only those investments which have yielded exempt income during the year are to be considered for the purpose of computing the average value of investment. We, therefore, deem it proper to restore the issue to the file of the Assessing Officer with a direction to ascertain the investments that have yielded exempt dividend income during the year and consider the same for the purpose of computing the average value of investments as per Rule 8D of the I.T. Rules, 1962. Needless to say the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 27th May, 2025.
Sd/- Sd/- (VINAY BHAMORE) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 27th May, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on 23.05.2025 Sr. PS/PS 2 Draft placed before author 26.05.2025 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order