POONAWALLA FINANCE PVT.LTD,(EARLIER KNOWN AS ADAR POONAWALA FINVEST PVT.LTD),PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -1 (1), PUNE

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ITA 1589/PUN/2019Status: HeardITAT Pune23 May 2022AY 2013-144 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the average value of investments for Rule 8D(2)(iii) should be confined to securities yielding exempt income, not total investments. The matter was remitted to the AO for re-computation.

What were the facts?

The assessee earned exempt dividend and long-term capital gain. The Assessing Officer revised the disallowance under Section 14A as per Rule 8D, which was affirmed by the CIT(A).

What were the issues?

Whether the disallowance under Section 14A, as per Rule 8D, should consider only investments yielding exempt income or all investments.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE

Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI

For Appellant: Shri R.S. Abhyankar
For Respondent: Shri M.G. Jasnani

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order dated 08-08-2019 passed by the CIT(A)-11, Pune in relation to the assessment year 2013-14. 2. The only issue raised in this appeal is against the disallowance u/s.14A of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).

3.

Briefly stated, the facts of the case are that the assessee earned exempt - dividend and long term capital gain - to the tune of Rs.89.02 lakh. A sum of Rs.29,536/- was shown as attributable to the exempt income and hence disallowable. The Assessing Officer (AO) revised the disallowance u/s.14A, as per the mandate of Rule 8D at ½% of average value of investments, at Rs.10,92,545/-. The ld. CIT(A) affirmed the addition.

4.

We have heard the rival submissions and gone through the relevant material on record. The only issue pressed is about restricting the addition under Rule 8D of the Income-tax Rules, 1962 by considering only such investments which yielded tax free dividend income. Other grounds challenging the improper satisfaction by the AO before making the disallowance etc. were not pressed. Such other grounds, ergo, stand dismissed.

5.

Now coming to the issue pressed before the Tribunal, it is seen that the Hon'ble Delhi High Court in ACB India Ltd. vs. CIT (2015) 374 ITR 108 (Del) has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB). In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of the AO for re-computing the disallowance under Rule 8D(2)(iii) by considering only such investments, in calculating the average value of investments, which yielded exempt income during the year. The assessee will be allowed hearing opportunity in such fresh proceedings.

6.

In the result, the appeal is partly allowed for statistical purposes. Order pronounced in the Open Court on 23rd May, 2022.

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