ADURJEE & BROS PVT.LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1 (1), PUNE

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ITA 426/PUN/2019Status: DisposedITAT Pune06 July 2022AY 2015-164 pages
AI SummaryPartly Allowed

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. The matter was remitted to the AO for re-computation.

What were the facts?

The assessee earned exempt income and offered a disallowance under Section 14A. The Assessing Officer computed a higher disallowance using Rule 8D, which was upheld by the CIT(A). The assessee appealed this disallowance.

What were the issues?

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

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 :

1.

This appeal by the assessee is directed against the order dated 10-01-2019 passed by the CIT(A)-1, Pune in relation to the assessment year 2015-16.

2.

The only issue raised in this appeal is the confirmation of disallowance of Rs.44,35,887/- 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 income of Rs.64,20,228/- and offered disallowance u/s.14A to the tune of Rs.19,84,341/-. The Assessing Officer (AO) invoked the provisions of section 14A read with Rule 8D of the Income-tax Rules, 1962 and computed the further amount disallowable at Rs.44,35,887/-. The ld. CIT(A) countenanced the disallowance. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

4.

We have heard both the sides and gone through the relevant material on record. The only contention of the ld. AR was that the addition under Rule 8D of the Income-tax Rules, 1962 should be made 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 06th July, 2022.

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