Investments Yielding Tax Exempt Income Can Only Be Considered For Computing Disallowance Under Rule 8D(2)(iii): Kolkata ITAT
Abiding by the principle of judicial hierarchy and binding precedent, the Kolkata ITAT directed the AO to consider only the investments yielding tax exempt income for computation of disallowance under Rule 8D(2)(iii) of the Income Tax Rules 1962.The Bench of the ITAT comprising of Sanjay Garg (Judicial Member) and Girish Agrawal (Accountant Member) observed while referring to the decision...
Abiding by the principle of judicial hierarchy and binding precedent, the Kolkata ITAT directed the AO to consider only the investments yielding tax exempt income for computation of disallowance under Rule 8D(2)(iii) of the Income Tax Rules 1962.
The Bench of the ITAT comprising of Sanjay Garg (Judicial Member) and Girish Agrawal (Accountant Member) observed while referring to the decision of Coordinate Bench of Guwahati in the case of ACIT vs. Williamson Financial Services Ltd. while deliberating upon the Explanation to section 14A that “the said Explanation being clarificatory is retrospectively applicable and that in view of the said Explanation, the disallowance u/s 14A will be attracted in respect of expenditure incurred for earning of tax exempt income irrespective of the fact that any tax exempt income has been yielded or not on such expenditure.”
As per the brief facts of the case, the assessee company has preferred the appeal challenging by the action of the CIT(A) in confirming the disallowance of Rs.68,65,91 7/- made by the AO by invoking the provisions of sec. 14A r.w. Rule 8D which is over and above the suo-moto disallowance of Rs.9,39,667/- made by the assessee itself.
The Bench noted while relying on the judgment of various High courts that the assessee has not derived any tax-exempt income from investments, then no disallowance is attracted u/s 14A.
The Bench observed while referring to the decision of Delhi High Court in the case of Joint Investments Private Ltd. vs. CIT and ACB India Limited vs. ACIT observed that for computing the disallowance u/s 14A r.w.r. 8D(2)(iii), the average value of only the investments yielding non-taxable income have to be considered and not the entire investment.
The Bench explained section 14A that the provisions to section 14A shall apply and shall be deemed to have always applied for the purpose of making disallowance in respect of expenditure incurred in relation to earning of tax-exempt income irrespective of the fact that any tax-exempt income has not actually accrued or received during the relevant year.
Therefore, on finding the explanation of section 14A is applicable prospectively, ITAT partly allowed the asssessee's appeal.
Counsel for Appellant/Taxpayer: Siddharth Agarwal
Counsel for Respondent/Department: S. Datta
Case Title: Soyuz Trading Co. Ltd verses DCIT
Case Number: I.T.A. No.1130/Kol/2023