Tribunal limits disallowance under Section 14A, upholding Assessing Officer's jurisdiction.

The tribunal partly allowed the appeal, upholding the Assessing Officer's jurisdiction to rework the disallowance under Section 14A but limiting the disallowance to Rs. 2,31,984. The tribunal also vacated the addition of the disallowance under Section 14A to the book profit for Section 115JB computation, modifying the CIT(A)'s order accordingly.

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Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962.
2. Inclusion of disallowance under Section 14A in the computation of book profit under Section 115JB of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The primary issue revolves around the disallowance made by the Assessing Officer (A.O) under Section 14A read with Rule 8D of the Income Tax Rules, 1962. The assessee had declared a suo-motto disallowance of Rs. 50,143/- for earning exempt dividend income of Rs. 15,22,953/-. However, the A.O was not satisfied with this disallowance and re-calculated it to Rs. 10,94,782/- using the methodology in Rule 8D, leading to an additional disallowance of Rs. 10,44,639/-.

The assessee contended that the A.O had not recorded any reason for dissatisfaction with the suo-motto disallowance, which is a statutory requirement as per the Supreme Court rulings in Godrej & Boyce Manufacturing Company Limited Vs. DCIT (2017) and Maxopp Investment Ltd. Vs. CIT (2018). However, the tribunal found that the A.O had indeed recorded his dissatisfaction based on the accounts presented, thus satisfying the statutory requirement.

The tribunal also addressed the assessee's contention that only those investments which had yielded exempt income during the year should be considered for computing the "average value" of investments under Rule 8D(2)(iii). The tribunal agreed with this view, referencing the Special Bench decision in ACIT Vs. Vireet Investments Pvt. Ltd. (165 ITD 27). Consequently, the tribunal restricted the disallowance to Rs. 2,31,984/- (Rs. 18,254/- under Rule 8D(2)(i) and Rs. 2,13,730/- under Rule 8D(2)(iii)).

2. Inclusion of Disallowance under Section 14A in the Computation of Book Profit under Section 115JB:

The second issue pertained to the addition of the disallowance under Section 14A to the book profit computed under Section 115JB. The A.O had added the disallowance of Rs. 10,94,782/- for this purpose. The tribunal, referencing the Special Bench decision in ACIT Vs. Vireet Investments Pvt. Ltd. (165 ITD 27), held that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation under Section 14A read with Rule 8D. Therefore, the tribunal vacated the addition made by the A.O for computing the book profit under Section 115JB.

Conclusion:

The appeal was partly allowed. The tribunal upheld the A.O's jurisdiction to rework the disallowance under Section 14A but restricted the disallowance amount to Rs. 2,31,984/-. Additionally, the tribunal vacated the addition of the disallowance under Section 14A to the book profit for the purpose of Section 115JB. The order of the CIT(A) was modified accordingly.

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