Tribunal sets aside CIT(A)'s decision, directs AO to recalculate disallowance under section 14A

The Tribunal allowed the assessee's appeal for statistical purposes, setting aside the CIT(A)'s decision. It directed the AO to recalculate the disallowance under section 14A r.w. Rule 8D(2)(iii) based on investments yielding dividend income during the relevant year, in line with the Delhi High Court's ruling.

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Issues:
Confirmation of addition by CIT(A) under section 14A r.w. Rule 8D.

Analysis:
The appeal was against the confirmation of the addition made by the Assessing Officer (AO) under section 14A r.w. Rule 8D. The assessee had not disallowed any expenses u/s 14A r.w. Rule 8D of the Act, leading to scrutiny by the AO. The AO disallowed a sum of Rs. 2,89,992 based on average investments, resulting in an assessed income of Rs. 93,21,998. The CIT(A) upheld the AO's order, emphasizing that it is impossible to earn substantial dividend income without incurring any expenses. The CIT(A) relied on precedents to support the disallowance under Rule 8D, stating that some expenditure is incurred for earning dividend income.

The assessee contended that the disallowed expenses were excessive and unreasonable, arguing that only investments yielding dividend income should be considered for disallowance under section 14A r.w. Rule 8D(2)(iii). The assessee referred to a judgment by the Delhi High Court supporting this argument. The Department, however, supported the lower authorities' decisions and requested the disallowance to be upheld.

The Tribunal acknowledged that the disallowance under section 14A r.w. Rule 8D(2)(iii) was applicable for the relevant assessment year. However, it agreed with the assessee's argument that only investments yielding dividend income should be considered for disallowance. Citing the Delhi High Court judgment, the Tribunal directed the AO to rework the disallowance by excluding investments that did not yield any dividend during the year. Consequently, the assessee's appeal was allowed for statistical purposes.

In conclusion, the Tribunal set aside the CIT(A)'s decision and directed the AO to recalculate the disallowance under section 14A r.w. Rule 8D(2)(iii) based on investments that yielded dividend income during the relevant year, in accordance with the Delhi High Court's ruling.

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