ITAT directs reassessment under Rule 8D (2) (iii) for dividend securities.

The ITAT allowed the assessee's appeals for statistical purposes, directing the assessing officer to recompute the disallowance under rule 8D (2) (iii) by considering only dividend-bearing securities, following legal precedents and evidence presented.

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Issues involved:
Disallowance under section 14A read with rule 8D of the Income Tax Rules.

Analysis:
The appeals were filed against the order passed by the Commissioner of Income-tax (Appeals) arising from an order by the Assessing Officer under section 143(3) of the Income-Tax Act, 1961. The appeals pertained to the same assessee but for different assessment years with common issues, thus heard together. The grievance was regarding the disallowance made under section 14A read with rule 8D of the Rules. The assessing officer had made additions under rule 8D (2) (ii) and (iii) despite the assessee's argument that no borrowed funds were used for generating exempt income. The Commissioner partly allowed the appeal, deleting one addition but confirming the other. The assessee then appealed to the ITAT.

During the proceedings, the assessee presented evidence of borrowings for special purposes, claiming they were not used for generating exempt income. The ITAT noted a Bombay High Court judgment stating that when own funds exceed the investment amount, it can be presumed that the investment was made from own funds. Following this, the ITAT deleted one of the additions. However, concerning the other addition under rule 8D (2) (iii), the ITAT referred to a Kolkata ITAT decision affirmed by the Calcutta High Court, stating that only investments yielding dividends during the previous year should be considered for calculating the disallowance under this rule. Consequently, the assessing officer was directed to compute the disallowance considering only dividend-bearing securities. Both appeals by the assessee were allowed for statistical purposes.

In conclusion, the ITAT ruled in favor of the assessee, directing the assessing officer to recompute the disallowance under rule 8D (2) (iii) while considering only dividend-bearing securities, based on legal precedents and the evidence presented during the proceedings.

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