The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that as per rule 8D(2)(iii), the disallowance under 14A needs to calculate based on the average value of the share by exempt income earned.
The assessee earned exempt – dividend and long-term capital gain – to the tune of Rs.89.02 lakh. A sum of Rs.29,536/- was shown as attributable to the exempt income and hence disallowable. The Assessing Officer (AO) revised the disallowance u/s.14A, as per the mandate of Rule 8D at ½% of an average value of investments, at Rs.10,92,545/- and CIT(A) affirmed the addition.
It was contended to restrict the addition under Rule 8D of the Income-tax Rules, 1962 by considering only such investments which yielded tax-free dividend income. It was held that the average value of investments, for Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments in the case of CB India Ltd. vs. CIT (2015) 374 ITR 108 (Del)
In light of the precedents the Tribunal consisting of Shri R S Syal, vice president and Shri S S Vswanethra Ravi, Judicial member had set aside the impugned order and remitted the matter to the AO for re-computing the disallowance under Rule 8D(2)(iii) by considering only such investments, in calculating the average value of investments, which yielded exempt income during the year. The appeal was partly allowed for statistical purposes. Shri R.S. Abhyankar appeared on behalf of the assessee and Shri M.G. Jasnani appeared on behalf of revenue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
