EDC LIMITED.,PANAJI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), NFAC, DELHI, PANAJI

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ITA 98/PAN/2022Status: DisposedITAT Panaji21 September 2023AY 2018-19Bench: SHRI R.S. SYAL (Vice President), SHRI S.S. VISWANETHRA RAVI (Judicial Member)3 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that it is a settled principle that only investments yielding exempt income should be considered for computing expenditure related to exempt income. The AO's disallowance was confirmed by the CIT(A).

What were the facts?

The assessee earned dividend income and claimed it as exempt. The AO disallowed a portion of expenditure based on Rule 8D(2)(iii), considering total average investment. The assessee argued that only investments yielding exempt income should be considered.

What were the issues?

Whether the AO was justified in disallowing expenditure under Section 14A by considering total average investment instead of only investments yielding exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, PANAJI

Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI

For Appellant: Shri Rahul Sarda
For Respondent: Shri P.S. Shivshankar

आदेश / ORDER

PER S.S. VISWANETHRA RAVI, JM :

1.

This appeal by the assessee against the order dated 29-07-2022 passed by the National Faceless Appeal Centre, Delhi (“NFAC”) for assessment year 2018-19.

2.

The assessee raised four grounds of appeal amongst which the only issue is to be decided is as to whether the CIT(A), NFAC, Delhi justified in confirming the addition made by the AO u/s. 14A r.w.s. 8D(ii) of the Rules.

3. At the outset, we note that the assessee earned dividend income of Rs.74,52,725/- which was claimed as exempt income. According to the AO, the assessee itself disallowed an amount of Rs.53,562/- for the purpose of expenditure incurred towards earning of the said dividend income. The AO, however, proceeded to adopt the methodology contemplated under Rule 8D(2) of the Rules. Since, the assessee not followed the methodology as contemplated under Rule 8D(2) of the Rules, the AO made disallowance at 1% on whole investment under Rule 8D(2)(iii) of the Rules taking into account the total average investment of Rs.18,04,08,859/-. On perusal of the assessment order, we note that the assessee calculated average investment at Rs.1,07,12,445/- which have yielded the dividend income of Rs.74,52,725/-, but however, the AO did not satisfy with the said submissions as made by the assessee to consider those investments which yielded exempt income for the purpose of computing disallowance of expenditure. The assessee reiterated the same submissions before the CIT(A), but however, CIT(A) confirmed the order of AO. Before us, the ld. AR drew our attention to the order of Special Bench of ITAT, Delhi in the case of Vireet Investment (P.) Ltd. reported in 82 taxmann.com 415 (Delhi-Trib.) (SB) at page 51 of the paper book. The ld. AR requested to remand the issue to the file of AO for its fresh consideration with a direction to take into account those investments which were yielded exempt income for the purpose of disallowance of expenditure. It is settled principle that those investments which yielded income shall be considered for the purpose of computing expenditure in relation to exempt income. The ld. DR did not dispute the finding of Special Bench of Delhi Tribunal. Thus, taking into consideration the facts and circumstances of the case, we deem it proper to remand the issue to the file of AO to make disallowance considering those investments which yielded exempt income for its fresh consideration. The assessee is liberty to file evidences, if any, in support of its claim. Thus, the grounds raised by the assessee are allowed for statistical purpose.

4.

In the result, the appeal of assessee is allowed for statistical purpose.

Order pronounced in the open court on 21st September, 2023.

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