PDR INVESTMENTS PRIVATE LIMITED,CHENNAI vs. ACIT CORPORATE CIRCLE 5(2), CHENNAI
What did the Tribunal hold?
The Tribunal set aside the orders of the lower authorities and remanded the matter back to the AO. The AO is directed to consider only those investments that gave rise to exempt income for the purpose of disallowance under Rule 8D.
What were the facts?
The assessee claimed dividend income as exempt but did not disallow any expenditure related to earning this income. The AO disallowed expenses under Section 14A read with Rule 8D, while the CIT(A) restricted the disallowance to the exempt income amount.
What were the issues?
The key issue was whether expenses related to exempt income should be disallowed and how to determine the quantum of such disallowance under Section 14A and Rule 8D.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI GIRISH AGRAWAL, HON’BLE
आदेश / O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-3, Chennai, in dated 21.03.2019. The assessment was framed by the ACIT, Corporate Circle-5(2), Chennai, for the AY 2015-16 u/s.143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide his order dated 30.12.2017.
Brief facts are that the AO during the course of assessment proceedings noticed that the assessee has earned dividend income to the tune of Rs.33,31,228/- and claimed the same as exempt u/s.10(34) of the Act. According to the AO, the assessee has not disallowed any expenditure relatable to exempt income or for earning of this exempt income in terms of provisions of Sec.14A of the Act r.w.r.8D of Income Tax Rules, 1962 (hereinafter “the Rules”). The AO, accordingly, noted that the assessee had interest expenses Rs.1,02,55,002/- and other expenses to the extent of Rs.1,08,063/-. Accordingly, the AO invoked the Rule 8D(2)(i) and disallowed the direct expenses relatable to exempt income at Rs.1,02,55,002/- under Rule 8D(2)(ii) i.e. interest expenses is ‘Nil’ and under Rule 8D(2)(ii) i.e. 0.5% of the average value of investment at Rs.5,73,847/-. Accordingly, the AO disallowed the total expenses relatable to exempt income at Rs.1,08,28,849/-. Aggrieved, the assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) without going into any details but restricted the disallowance to the extent of exempt income i.e. dividend income of Rs.33,31,228/-. Aggrieved, the assessee is in the second appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We have perused the case records including Assessment Order and the order of the Ld.CIT(A) as well as the details filed by the assessee in Typed Set from Page Nos.1-10. The Ld.Counsel for the assessee Mr. R.Vijayaraghavan, only made request that the disallowance under Rule 8D(2)(i), 8D(2)(ii) & 8D(2)(iii) be restricted only on the investments given rise to exempt income and only those investments should be considered for the same. The Ld.Counsel for the assessee filed the details of dividend income received from the following parties:
Date Name of Company Amount (in Rs.) 24.07.2014 Sundaram Finance Ltd. 20,000 07.08.2014 Panasonic Carbon India India Ltd. 1,785 20.08.2014 Ultratech Cement Ltd. 180 26.08.2014 L & T Ltd. 1,596 08.09.2014 L & T Ltd. 527 30.09.2014 Indo National Ltd. 32,78,140 Total 33,02,228
The Ld.Counsel for the assessee stated that the investment made in the above parties and which gives rise to exempt income only be considered for disallowance under Rule 8D(2) i.e. limb (i), (ii) & (iii) of the Rules. To this proposition, the ld.Sr.DR Mr.G.Johnson, has not raised any objection.
In terms of the above, we set aside the order of the lower authorities and remand the matter back to the file of the AO to consider the investments made by the assessee which gives rise to exempt income only for the purpose of disallowance under Rule 8D(2)(i)(ii) & (iii) of the Rules. In case, that the disallowance exceeds the exempt income, then the AO will restrict the disallowance to the extent of exempt income only i.e. Rs.33,02,228/-. The AO will decide the issue in terms of the above after considering the submissions of the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 04th day of March, 2022, in Chennai.
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