Successful appeal by assessee on disallowance & income computation issues under IT Act

The appeal was allowed by the ITAT, ruling in favor of the assessee on the disallowance issue under Rule 8D(2)(iii) of the IT Act. The ITAT also found in favor of the assessee regarding the computation of income under section 115JB, following the decision in the case of Vireet Investments Private Limited. Consequently, the grounds raised by the assessee on the computation of income under section 115JB were upheld, leading to the overall success of the appeal on 13th February 2019.

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Issues:
1. Disallowance under section 14A r.w.s 8D of the IT Act.
2. Applicability of disallowance under section 14A for computing book profits u/s 115JB of the Act.

Analysis:
1. The appeal was filed against the order of the CIT(A)-3, Hyderabad for the assessment year 2013-14. The assessee, a company deriving income from investments and rents, filed its return of income admitting income under normal provisions and book profits u/s 115JB of the Act. The AO observed that the company earned exempt dividend income and income from mutual funds, questioning why disallowance u/s 14A r.w.s 8D was not made. The assessee contended that investments were not made from borrowed funds and no direct expenditure was attributable to dividend income. The AO, however, made a disallowance under Rule 8D(2)(iii) and added it back to book profits for computing income u/s 115JB. The CIT(A) confirmed the AO's order, leading to the appeal before ITAT. The assessee raised grounds challenging the CIT(A)'s decision, arguing that the disallowance should be made only on investments yielding exempt income. The ITAT, considering various decisions, allowed the additional grounds of appeal, ruling in favor of the assessee on the disallowance issue under Rule 8D(2)(iii).

2. The ITAT also addressed the computation of income u/s 115JB, finding in favor of the assessee based on the decision of the Special Bench of Delhi ITAT in the case of Vireet Investments Private Limited. The ITAT held that the computation u/s 115JB should be done without resorting to the computation as contemplated under section 14A r.w. Rule 8D of the IT Rules, 1962. Consequently, the grounds raised by the assessee regarding the computation of income u/s 115JB were allowed. As a result, the appeal filed by the assessee was allowed by the ITAT, pronouncing the judgment on 13th February 2019.

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