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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -3, Chennai, dated 30.08.2017 and pertains to assessment year 2013-14.
The only issue arises for consideration is disallowance of ₹5,37,254/- under Section 14A of the Income-tax Act, 1961 (in short 'the Act') read with Rule 8D of the Income-tax Rules, 1962.
Shri C. Naresh, the Ld. representative for the assessee, submitted that for the purpose of disallowance under Section 14A of the Act read with Rule 8D(2)(iii), 0.5% of the average investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee on the first day and the last day of the previous year shall be taken into consideration. In the present case, according to the Ld. representative, the Assessing Officer has taken entire investment even though no income was earned by the assessee. Placing reliance on the decision of Special Bench of Delhi Bench of this Tribunal in ACIT v. Vireet Investment (P.) Ltd. (2017) 82 taxmann.com 415, the Ld. representative submitted that only those investments which yield exempted income alone need to be considered. If any such investment, which does not give any income, the same cannot be considered for disallowance.
We heard Shri A. Sasikumar, the Ld. Departmental Representative, also. We have gone through the provisions of Rule 8D(2)(iii) of the Income-tax Rules, 1962 as it exists at the relevant point of time which reads as follows:-
“8D(2)(iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.”
In view of the above, it is obvious that while computing disallowance under Rule 8D(2)(iii), the Assessing Officer is expected to take the amount equal to 0.5% of average of value of investment, income from which does not or shall not form part of the total income as per the balance sheet on the first day and the last day of the previous year. Therefore, the Assessing Officer cannot travel beyond the language of Rule 8D(2)(ii) of the Income-tax Rules, 1962. In other words, the income which does not form part of total income of the assessee alone has to be considered. The Special Bench of Delhi Bench of this Tribunal considered an identical issue and found that only those investments which yielded exempted income during the year alone has to be considered. In fact, the Special Bench has observed as follows at para 11.1 of its order:-
“11.1 In the present case, our decision is restricted only to the extent of interpretation of language employed in Rule 8(2)(iii). The submission of ld. counsel for the assessee is that this issue is now covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Hofcin India (P.) Ltd. (supra), wherein it has been held that if no dividend income was earned, section 14A could not be invoked.” v. Addl. CIT (2017) 77 taxmann.com 257 has also found that where there is no exempted income, there cannot be any disallowance.
Ultimately, the Special Bench has concluded at 11.16 as follows:-
“11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year.”
In view of the above, this Tribunal is of the considered opinion that only those investments which yielded exempted income alone has to be considered for the purpose of disallowance under Rule 8D(2)(iii). Therefore, we are unable to uphold the orders of the authorities below. Accordingly, the orders of both the authorities below are set aside and the issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and restrict the disallowance in respect of such investments which yielded the exempted income, and which does not form of total income alone has to be considered for disallowance.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on 12th July, 2018 at Chennai.