PLANETCAST MEDIA SERVICES LTD.,NEW DELHI vs. ACIT, NEW DELHI

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ITA 5430/DEL/2016Status: DisposedITAT Delhi04 June 2019AY 2013-143 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The tribunal held that only investments yielding exempt income should be considered for disallowance under Rule 8D(2)(iii). Expenditure cannot be disallowed if investments do not yield exempt income.

What were the facts?

The assessee earned exempt income from IRFC bonds. The Assessing Officer disallowed expenditure under Section 14A read with Rule 8D(2)(iii). The dispute arose over whether to consider all investments or only those yielding exempt income for disallowance.

What were the issues?

Whether disallowance of expenditure under Section 14A read with Rule 8D(2)(iii) should be based on total investments or only on investments yielding exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Before: Shri H.S. Sidhu & Shri B.R.R. Kumar

Hearing: 04.06.2019

ORDER Per B.R.R. Kumar, A.M.: The brief facts of the case are that the assessee is engaged in the business of providing satellite based telecommunication solutions like VSAT services and broadband services. During the year, the assessee has earned exempt income of Rs.24,66,531/- from the investment in IRFC bonds of Rs.3,04,51,000/-. The total investment as per the balance sheet as on 31.03.2013 were to the tune of Rs.13,89,94,676/-.

2.

The issue to be adjudicated is, whether entire investments or only the exempt income yielding investments are to be considered while disallowing the expenditure u/s. 14A read with Rule 8D(2)(iii)?.

3. Section 14A of the Act provides - for the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what section 14A provides is that if there is any income which does not form part of the total income under the Act, the expenditure which is incurred for earning such income is not an allowable deduction. The corollary of this analysis is that, when certain investments do not yield dividend or exempt income, no expenditure can be disallowed. Reliance is placed in this regard on the judgment of Hon’ble Delhi High Court in the case of Interglobe Enterprises Ltd., dated 19.08.2016, wherein it is held that only the investments expressly spelt out in Rule 8D(iii) which is to be reckoned for the purpose of calculation of average of half percent. Similar view has been taken by Delhi Tribunal in the case of Vireet Investment P. Ltd., ITA No. 502/Del/2012 and also in the case of M/s.

Apollo Finance Ltd., dated 31.01.2018. Hence, we hold that only the investments which yielded the exempt income are to be considered while determining the disallowance u/r. 8D(2)(iii). The matter is referred back to the file of the Assessing Officer for the limited purpose of computation of disallowance taking into consideration the principles laid down above.

3.

As a result, the appeal is treated as allowed.

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