Tribunal Upholds Re-computation of Disallowance, Aligning with Precedent for Investments Generating Exempt Income.

The ITAT Chennai dismissed the Revenue's appeal against the CIT(A)'s order for AY 2012-13, which directed a re-computation of disallowance under section 14A read with Rule 8D. The Tribunal upheld the CIT(A)'s directive that disallowance should only consider investments generating income not forming part of the total income, aligning with a precedent set by the Co-ordinate Bench. The Assessing Officer was instructed to re-compute the disallowance under Rule 8D(2)(iii) accordingly. The decision was pronounced on October 09, 2017, in Chennai.

---

---

Issues:
Appeal against the Order of the Commissioner of Income Tax (Appeals) directing re-computation of disallowance u/s.14A r.w.r.8D.

Analysis:
The Appellate Tribunal ITAT Chennai heard an appeal filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals)-8, Chennai, for the AY 2012-13. The only issue in the appeal was the direction by the Ld.CIT(A) to recompute the disallowance u/s.14A r.w.r.8D. The Ld.DR argued that the Ld.CIT(A)'s direction was erroneous and should be reversed. However, the Ld.AR contended that the issue was covered by a decision of the Co-ordinate Bench of the Tribunal in a previous case. The Co-ordinate Bench had held that disallowance under section 14A read with Rule 8D should only consider investments that have given rise to income not forming part of the total income.

The Co-ordinate Bench's decision emphasized that the disallowance under section 14A read with rule 8D should be in relation to income not forming part of the total income, and it should consider only investments that have generated such income. Therefore, not all investments should be considered when computing the disallowance. The Tribunal directed the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) by taking into account the amount equal to half a percentage of the average value of the investment that has generated income not forming part of the total income.

After considering the rival submissions and the precedent set by the Co-ordinate Bench in the case of M/s.Computer Age Management Services (P) Ltd., the Tribunal confirmed the findings of the Ld.CIT(A) on the issue. Consequently, the appeal filed by the Revenue was dismissed, and the decision was pronounced in the Open Court on October 09, 2017, at Chennai.

---