2018 (11) TMI 1318 - AT - Income Tax

Tribunal allows appeal, specifies disallowance calculation under Rule 8D(2)(iii) for dividend-yielding investments. Importance of substantiating claims emphasized.

The Tribunal allowed the appeal for statistical purposes, directing a specific calculation for disallowance under Rule 8D(2)(iii) based on investments ... Disallowance u/s 14A - AO recorded dissatisfaction regarding the genuineness of the assessee's claim of the expenses relating to exempt income with regards to his books of account maintained as the assessee has been unable to justify its claim by producing books of account - Held that:- It is not disputed that the assessee has substantial investments and has received tax free income. The AO has made no disallowance under rule 8D(2)(i) and Rule 8D(2)(ii) of the Income Tax Rules. So far disallowance under rule 8D (2) (iii) is concerned, we note that Coordinate Bench of ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT (2013 (9) TMI 156 - ITAT KOLKATA) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High [2014 (4) TMI 713 - CALCUTTA HIGH COURT ] We direct the assessing officer to compute the disallowance under Rule 8D(2)(iii) of the Rules by taking into account dividend bearing securities, that is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments. Therefore, we allow this appeal for statistical purposes. Issues:1. Disallowance of expenditure u/s 14A of Income-tax Act, 1961.2. Appeal heard ex parte due to non-appearance of assessee.3. Disallowance calculation under Rule 8D of I.T. Rules.Issue 1: Disallowance of expenditure u/s 14A:The appeal concerned the disallowance of Rs. 6,25,975 under Section 14A of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed the amount as the assessee failed to justify its claim of expenditure related to exempt income. The AO applied Rule 8D of I.T. Rules for disallowance calculation. The Commissioner of Income Tax (Appeals) upheld the AO's decision, noting that the disallowance was only under Rule 8D(2)(iii) - 0.5% of average investments. The appellate authority confirmed the disallowance as the assessee did not appear or submit any written arguments.Issue 2: Appeal heard ex parte:The appeal was heard ex parte as the assessee did not appear despite multiple notices. The Departmental Representative for the Revenue was present. The disposal ex parte was in line with Rule 24 of the Income Tax Appellate Tribunal, 1963.Issue 3: Disallowance calculation under Rule 8D of I.T. Rules:The Tribunal directed the AO to compute the disallowance under Rule 8D(2)(iii) by considering only investments yielding dividends during the previous year. This direction was based on a previous decision by the ITAT Kolkata and affirmed by the Calcutta High Court. The Tribunal allowed the appeal for statistical purposes, emphasizing the specific consideration of dividend-bearing securities for disallowance calculation.In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a specific calculation for disallowance under Rule 8D(2)(iii) based on investments yielding dividends. The judgment highlighted the importance of substantiating claims and the consequences of non-appearance in appellate proceedings.