Tribunal allows appeal on disallowance under Section 14A of Income Tax Act

The Tribunal allowed the appeal filed by the assessee regarding disallowance made under section 14A of the Income Tax Act. The Tribunal held that no additional expenditure was incurred as investments were mainly in liquid fund schemes and dividend income was reinvested or directly received. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to accept the disallowance made by the assessee. Additionally, the Tribunal remanded the issue of interest charged under section 234C back to the Assessing Officer for re-examination based on the returned income and advance tax paid by the assessee.

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Issues:
1. Disallowance made u/s. 14A of the Act.
2. Charging of interest u/s. 234C of the Act.

Analysis:

Issue 1 - Disallowance u/s. 14A of the Act:
The appeal concerned the disallowance made under section 14A of the Act. The assessee, engaged in the pharmaceutical business, earned exempt dividend income during the relevant assessment year. The Assessing Officer disallowed a specific amount under Rule 8D of the Income Tax Rules, which was confirmed by the CIT(A). The assessee contended that as the investments were mainly in liquid fund schemes, which did not require significant analysis, and the dividend income was reinvested or directly received, no additional expenditure was incurred. The Tribunal agreed with the assessee, noting the limited investment activity and lack of dissatisfaction with the methodology adopted. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to accept the disallowance made by the assessee.

Issue 2 - Charging of interest u/s. 234C of the Act:
The second issue revolved around the interest charged under section 234C of the Act. The assessee argued that the interest should be computed based on the "returned income" and considering the advance tax paid. It was contended that there was an error in the assessment order regarding the computation of interest under section 234C. The Tribunal acknowledged the requirement to compute interest on the returned income while duly considering the advance tax paid. Consequently, the Tribunal remanded this issue back to the Assessing Officer for re-examination, taking into account the returned income and advance tax paid by the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee, pronouncing the order on 26.9.2018.

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