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Facts
The Revenue filed an appeal against the CIT(A)'s deletion of disallowance made under Section 14A of Rs. 1,95,22,345/-. The assessee had suo moto disallowed Rs. 17,21,177/- but the Assessing Officer invoked Section 14A and Rule 8D for a higher disallowance.
Held
The Tribunal found that the assessee had reasonably computed the disallowance based on time utilized and salary costs allocated to employees involved in investment transactions. Therefore, the Revenue's invocation of Section 14A was deemed unnecessary.
Key Issues
Whether the disallowance under Section 14A read with Rule 8D made by the Assessing Officer was justified, or if the assessee's own computation was reasonable.
Sections Cited
14A, 8D, 115JB, 14A(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: JUSTICE(RETD.) C V BHADANG & DR.BRR KUMAR
[PAN No.AACCS6739B] (Appellant) .. (Respondent) Appellant by : Shri Bharat S Shah, AR Respondent by: Shi Yogesh Mishra, S.DR Date of Hearing 06.01.2025 Date of Pronouncement 13.01.2025 O R D E R PER: DR.BRR KUMAR, VICE PRESIDENT:
This appeal has been filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax(Appeal)/National Faceless Appeal Centre, passed for the Assessment Year 2017-18.
The grounds raised by the revenue are as follows:
(a) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,95,22,345/- made u/s 14A r.w. Rule 8D of the IT Act. (b) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s. 14A r.w. Rule 8D of IT Act of Rs. 1,95,22,345/- made in Book Profit as per clause (1) to Explanation 1 to Section 115.JB of IT Act? (c) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal.
Apropos facts required for adjudication of the case are that during the year under consideration the assessee had average monthly balance of investments, yielding exempt income as per Rule 8D(ii) was to the tune of Rs.212,41,07,335/-. Out of these is investments, the assessee earned an amount of Rs.5,65,81,833/- and claimed the same as income exempt from taxation. The assessee has suo moto disallowed an amount of Rs.17,21,177/- on account of expenses incurred for earning the exempt income. Not satisfied with the expenses disallowed by the assessee the Assessing Officer resorted to invocation of provision of section 14A read with Rule 8D and determined disallowance of an amount of Rs.1,95,22,345/-. (212,41,07,335- 17,21,177).
Aggrieved, the assessee filed the appeal before the Ld.CIT(A), who deleted the disallowance made by the Assessing Officer on the grounds that the assessee had sufficient surplus funds and the disallowance made by the assessee suffice the expenditure incurred by the assessee for earning the exempt income.
Aggrieved, Revenue filed appeal before the Tribunal.
During the hearing the Ld.DR argued that the assessee could not satisfactorily explained the ratio of disallowance and also the Assessing Officer had right reasons for not satisfying himself with the disallowance made by the assessee. The Ld.DR argued that the invocation of section 14A(2) and the determination of disallowance @ 1% of the average monthly balance of the investments of the assessee is in accordance with the Rule 8D(ii) of Income Tax Rules. On the other hand, the Ld.AR argued that the Assessing Officer has no reason to invoke provisions of section 14(2) as the assessee has reasonably computed the disallowance on a scientific basis.
We have gone through the provision of the Act and the rationale of the disallowance determined by the assessee. We find that the assessee has considered the time utilized for purchase and sales transactions of the investments carried out employees and the relevant salary cost. We find that the assessee has allocated proportional the salary cost of the Executive Director, GM Finance, Assistant Manager and others senior Executive. Ergo, we find no reason for the revenue authorities to invoke the provisions of 14A(2).
In the result, the appeal of the Revenue is dismissed.
Order pronounced via video conferencing on 13.01.2025