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Tribunal limits disallowance under IT Act, aligns with Special Bench ruling The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under section 14A r.w.r. 8D of the IT Act to Rs. 5,512 instead of the initial ...
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Tribunal limits disallowance under IT Act, aligns with Special Bench ruling
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under section 14A r.w.r. 8D of the IT Act to Rs. 5,512 instead of the initial amount of Rs. 1,79,74,266. The Tribunal aligned with the Special Bench's ruling that only the average value of investments generating exempt income should be considered for disallowance. As the assessee received dividend income from a current investment, the Tribunal agreed with the CIT(A)'s calculation of 0.5% of the investment amount as expenses for earning exempt income. The Tribunal dismissed the Revenue's appeal, affirming the reduced disallowance amount.
Issues: 1. Disallowance under section 14A r.w.r. 8D of Income Tax Rules.
Analysis: The appeal was filed by the Revenue against the order of the CIT(A) relating to the assessment year 2014-15. The Revenue raised grounds challenging the CIT(A)'s decision to restrict the addition to Rs. 5,512 instead of the initial disallowance of Rs. 1,79,74,266 under section 14A r.w.r. 8D of the IT Act. The Assessing Officer had disallowed the substantial amount, but the CIT(A) determined that only 0.5% of the investment amount yielding exempt income should be considered as expenses incurred for earning such income, resulting in the reduced disallowance.
The Tribunal, comprising MS SUSHMA CHOWLA, JUDICIAL MEMBER, and SHRI R.K. PANDA, ACCOUNTANT MEMBER, after considering the arguments, upheld the CIT(A)'s decision. The Tribunal referred to the Delhi Special Bench's decision in the case of Vireet Investment Pvt. Ltd. and Anr., where it was held that only the average value of investments generating exempt income during the year should be taken into account for disallowance under section 14A. Since the assessee had received dividend income of Rs. 6,48,431 from the current investment of Rs. 11,02,496, the Tribunal agreed with the CIT(A)'s calculation of 0.5% of the investment amount as expenses incurred for earning exempt income, aligning with the Special Bench's ruling.
Therefore, the Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's appeal, affirming the restricted disallowance of Rs. 5,512. The decision was pronounced in the open court on 31.12.2019.
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