POONAWALLA SHARES AND SECURITIES PVT.LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 4, PUNE

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ITA 1380/PUN/2018Status: DisposedITAT Pune08 July 2022AY 2015-164 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the average value of investments for Rule 8D(2)(iii) should only include investments yielding exempt income, following precedents from the Delhi High Court and a Special Bench of the Tribunal.

What were the facts?

The assessee earned exempt dividend income and the Assessing Officer disallowed a portion under Section 14A based on Rule 8D(2)(iii). The CIT(A) affirmed this addition.

What were the issues?

Whether the disallowance under Section 14A should be computed considering 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 “A”, PUNE

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

For Appellant: Shri R.S. Abhyankar
For Respondent: Shri Arvind Desai

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order dated 07-06-2018 passed by the CIT(A)-3, Pune in relation to the assessment year 2015-16. 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 income from Indian companies to the tune

1.

Poonawalla Shares & Securities Pvt. Ltd., of Rs.1,76,60,417/-. Certain amount was shown as attributable to the exempt income and hence disallowable u/s 14A of the Act.

The Assessing Officer (AO) revised the disallowance u/s.14A, as

per the mandate of Rule 8D(2)(iii), at ½% of average value of investments and made further addition of Rs.7,79,645/-. The ld. CIT(A) affirmed the addition, against which the assessee has approached the Tribunal.

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(2)(iii) 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

Poonawalla Shares & Securities Pvt. Ltd., 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 08th July, 2022.

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