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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:-
The appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-8, Chennai, dated 27.06.2017 in for the assessment year 2013-14 passed U/s.250(6) r.w.s. 143(3) of the Act.
The appeal was filed by the assessee with a delay of 71 days. The Ld.AR submitted that the Chartered Accountant who is in-charge of accounts & tax matters of the assessee company was pre-occupied with other professional matters and was travelling frequently. Hence it was pleaded that the delay of 71 days in filing the appeal may be condoned. The Ld. DR strongly objected to the submission of the Ld. AR. However, after hearing both sides, though we do not appreciate the lapse on the part of the assessee, in the interest of justice, we hereby condone the delay of 71 days in filing the appeal and proceed to hear the matter on merits.
The assessee has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of by the Ld.AO who had made addition in the hands of the assessee amounting to Rs.3,08,728/- by invoking the provisions of Section 14A r.w.r.8D of the Rules.
The brief facts of the case are that the assessee is a private limited company engaged in the business of making investments and rendering financial services, e-filed its return of income for the assessment year 2013-14 on 21.09.2013 declaring loss of Rs.3,08,728/-. The case was selected for scrutiny under CASS and notice U/s.143(2) & 142(1) of the Act was issued on 04.09.2014 & 15.06.2015 respectively. Finally assessment order was passed U/s.143(3) of the Act on 31.12.2015 wherein the Ld.AO made addition of Rs.3,08,728/- by restricting the 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 it with respect to 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 as indicated herein above.
Order pronounced on the 13th August, 2018 at Chennai.