Tribunal allows assessee's appeals for 2013-14 and 2014-15, directs AO on disallowances

The Tribunal allowed the assessee's appeals for the assessment years 2013-14 and 2014-15, dismissing the Assessing Officer's appeals as infructuous. The AO was directed to accept the assessee's suo motu disallowance and delete the additional disallowance under Section 14A read with Rule 8D. The procedural delay in pronouncing the order due to the COVID-19 lockdown was justified and validated.

---

---

Issues Involved:
1. Disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii) of the Income Tax Rules.
2. Computation of Book Profit under Section 115JB of the Income Tax Act.
3. Exclusion of strategic investments for computing disallowance under Section 14A read with Rule 8D(2)(iii).
4. Procedural delay in pronouncement of the order due to COVID-19 lockdown.

Issue-wise Detailed Analysis:

1. Disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii) of the Income Tax Rules:
The assessee challenged the disallowance made by the Assessing Officer (AO) under Rule 8D(2)(i) and Rule 8D(2)(iii) of the Income Tax Rules. The AO had disallowed Rs. 2,86,45,152 as direct expenditure related to the Project and Investment Department and further disallowed 0.5% of the average investments held by the assessee, amounting to Rs. 11,06,68,000 under Rule 8D(2)(iii). The CIT(A) upheld the rejection of the assessee's suo motu disallowance but granted partial relief. The Tribunal found that the AO had not provided specific reasons for rejecting the assessee's computation and had merely relied on Rule 8D. It was held that the AO's satisfaction under Section 14A(2) must be independent of Rule 8D, and the AO had erred in invoking Rule 8D(2). The Tribunal directed the AO to accept the assessee's suo motu disallowance of Rs. 6,18,69,000 and delete the additional disallowance.

2. Computation of Book Profit under Section 115JB of the Income Tax Act:
The assessee contended that the expenditure incurred by the Project and Investment Department should not be considered in computing Book Profit under Section 115JB, as the AO had not established that such expenditure represented direct expenditure. The Tribunal did not specifically address this issue in detail, as the primary issue of disallowance under Section 14A was resolved in favor of the assessee, rendering other issues academic and infructuous.

3. Exclusion of Strategic Investments for Computing Disallowance under Section 14A read with Rule 8D(2)(iii):
The AO was aggrieved by the CIT(A)'s direction to exclude strategic investments from the total investment for computing disallowance under Section 14A read with Rule 8D(2)(iii). The Tribunal, however, reiterated its earlier findings that the AO had erred in invoking Rule 8D(2) without independently satisfying the conditions under Section 14A(2). Therefore, the Tribunal directed the AO to delete the additional disallowance and accept the assessee's suo motu disallowance, making this issue academic and infructuous.

4. Procedural Delay in Pronouncement of the Order Due to COVID-19 Lockdown:
The Tribunal acknowledged the delay in pronouncing the order beyond the 90-day period due to the COVID-19 lockdown. It referred to Rule 34(5) of the Income Tax Appellate Tribunal Rules, 1963, which allows for extensions in exceptional and extraordinary circumstances. The Tribunal noted the unprecedented disruption caused by the pandemic and the nationwide lockdown, which justified the delay. It cited relevant judicial precedents and government notifications recognizing the COVID-19 situation as a natural calamity and force majeure event. The Tribunal concluded that the period of lockdown should be excluded from the 90-day time limit for pronouncement of orders, thus validating the delay.

Conclusion:
The appeals filed by the assessee for the assessment years 2013-14 and 2014-15 were allowed, and the appeals filed by the Assessing Officer were dismissed as infructuous. The Tribunal directed the AO to accept the assessee's suo motu disallowance and delete the additional disallowance under Section 14A read with Rule 8D. The procedural delay in pronouncement of the order due to the COVID-19 lockdown was justified and validated.

---