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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Madurai dated 13.06.2018, vide for the assessment year 2011-12 passed U/s.250(6) r.w.s 143(3) & 263 of the Act. At the time of hearing, none appeared on behalf of the assessee. Since the issue in appeal is identical to the case already decided by us, we hereby proceed to decide the matter on merits based on the materials on record and after hearing the Ld.DR.
The assessee has raised several grounds in his appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the addition made by the Ld.AO amounting to Rs.2,37,598/- invoking the provisions of Section 14A r.w.r. 8D(2)(iii) of the Rules
The brief facts of the case are that the assessee is an individual filed his return of income for the assessment year 2011-12 electronically on 29.07.2011 admitting total income of Rs.1,59,28,332/- Initially the return was processed U/s.143(1) of the Act on 12.10.2011. Subsequently the case was selected for scrutiny and finally assessment order was passed U/s.143(3) of the Act on 12.03.2014 accepting the return filed by the assessee. Thereafter the Ld.PCIT invoking powers U/s.263 of the Act, vide his order dated 12.03.2014, set aside the order of the Ld.AO and further directed the Ld.AO to redo the assessment afresh. Finally the assessment order was passed U/s.143(3) r.w.s. 263 of the Act on 31.12.2016 wherein the Ld.AO made addition of Rs.2,37,598 towards disallowance U/s.14A r.w.r.8D of the Rules. On appeal the Ld.CIT(A) confirmed the addition made by the Ld.AO.
At the outset, we find that with respect to disallowance U/s.14A of the Act, we had held in & 1730/Chny/2016 in the case M/s. Sthithi Insurance Services Pvt. Ltd., vide order dated 18.06.2018 that application of Rule 8D is not automatic. If the assessee computes to the satisfaction of the Ld.Revenue Authorities, the expenses incurred by him with respect to the investments earning exempt dividend then the same should be disallowed. Only when such computation is not possible Rule 8D should be applied for computing the disallowance U/s.14A of the Act. The relevant portion of the order is reproduced herein below for reference:-
“5.2 We have heard the rival submissions and carefully perused the materials on record. It is apparent from the facts of the case, that the assessee has made huge investments in shares which earn dividend income exempt from tax. According to Section 14A of the Act the expenditure incurred towards earning exempt income cannot allowed as deduction from the taxable income of the assessee. In the case of the assessee, it is evident that for the process of decision making as to which shares the assessee has to invest, dis-invested, and at what point of time etc., will involve cost. Such expenditures incurred towards earning dividend income which is exempt from tax cannot be claimed as deduction from the taxable profit of the assessee company. As per the provisions of the Act, the assessee is bound to compute the actual expenses incurred by it towards investment that would earn exempt income and disallow the same. In the case of the assessee, such computation is neither made nor the expenditure towards earning exempt disallowed by the assessee. Therefore we are of the view that the Ld.AO was right in his realm to invoke the provisions of Section 14A r.w.r.8D of the Rules. Further it is pertinent to mention that there is no correlation between the dividend income earned by the assessee and the expenditure incurred by the assessee towards investment that earns exempt income. For example:- during a particular year the assessee would not have earned any dividend income though it has made heavy investments during the previous year or the earlier years, but the assessee is bound to incur cost for acquiring / maintaining /dis-investing such investments. Hence it cannot be inferred that the dividend income would be directly proportional to the expenditure incurred on the investment earning exempt income. Therefore we do not find any merit in the order of the Ld.CIT(A) for having restricted the disallowance U/s.14A of the Act to the extent of exempt income earned by the assessee. However since the assessee has not computed its actual expenditure incurred towards the investment that earns exempt income, in the interest of justice, we remit back the matter to the file of Ld.AO for both the assessment years thereby affording one more opportunity to the assessee to work out the actual expenditure incurred by it towards the investment that earn exempt income and disallow the same. We further hereby direct the Ld.AO to verify the computation submitted by the assessee for both the assessment years and thereafter decide the matter in accordance with law and merit.”
Since we have already decided the issue with respect to computation of disallowance U/s.14A r.w.r. 8D of the Rules in the decision cited supra, we remit back the matter to the file of Ld.AO to compute the disallowance U/s.14A of the Act in the similar manner. It is ordered accordingly.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on the 30th November, 2018 at Chennai.