Poonawalla Shares And Securities Pvt. Ltd. vs. Deputy Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (08 Jun 2021)

Amount of investment which yielded exempt income alone should be taken into consideration for purpose of arriving at average value of investment

MANU/IP/0088/2021

Direct Taxation

In facts of present case, the Appellant is a Company incorporated under the Companies Act, 1956 and engaged in the business of investment in shares and securities and brokerage. The return of income for the assessment year 2013-14 was filed on 28th September, 2013 declaring total income of Rs.1,36,49,310. The scrutiny assessment was completed under Section 143(3) of the Income Tax Act, 1961 (IT Act) by the Deputy Commissioner of Income Tax, (AO) vide order at total income of Rs.1,47,77,369. While doing so, the Assessing Officer made addition of Rs.11,87,427 under Section 14A of the Act rejecting the contention of the Appellant that, no indirect expenditure was incurred to earn exempt income. While accepting the disallowance offered by the Appellant as direct cost of Rs.2,81,422, the Assessing Officer made addition of Rs.11,87,427 as indirect expenditure.

Being aggrieved by the assessment order, an appeal was preferred before the learned Commissioner of Income Tax (Appeal) contending that no indirect expenditure was incurred to earn exempt income. Alternatively, it was contended that, for the purpose of computing average value of investment, value of investment which yields exempt income alone has to be considered. However, this contention was rejected by the learned Commissioner of Income Tax (Appeal) vide his impugned order. Being aggrieved by the order of the learned Commissioner of Income Tax (Appeal), the assessee company has filed present appeal.

The only issue that arises for consideration is manner of computing the amount of disallowance under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule. The issue as regards to the applicability of provision of Section 14A of the Act is not under challenge before present Tribunal. The Hon’ble Special Bench of Income Tax Appellate Tribunal, Delhi in the case of Asstt. CIT Vs. Vireet Investment (P) Ltd., has held that while computing the amount of disallowance under sub clause (iii) of sub-rule (2) of Rule 8D of the Income Tax Rules, 1962 the value of investment which yielded exempt income alone has to be considered for the purpose of arriving at average value of investment, on the similar lines, the decision of the Hon’ble Delhi High Court in the case of ACB India Ltd. Vs. Assistant Commissioner of Income Tax and the decision of the Madras High Court in the case of Marg Ltd. Vs. CIT, and followed subsequently by the Hon’ble Madras High Court in the case of CIT Vs. Shriram Ownership Trust and also by the Karnataka High Court in the case of Pragathi Krishna Gramin Bank Vs. Jt. CIT .

The amount of investment which yielded exempt income alone should be taken into consideration for the purpose of arriving at average value of investment as envisaged under sub clause (iii) of sub-rule (2) of Rule 8D of the Rule. Accordingly, the matter restored back to the file of Assessing Officer for the purpose of computing the amount of disallowance. Appeal of the assessee is partly allowed.

Tags : ASSESSMENT DISALLOWANCE LEGALITY