Tribunal Adjusts Disallowance of Interest and Recalculates Expenses Based on Exempt Dividend Income Shares Value. The Tribunal partially allowed the assessee's appeal, instructing the AO to remove the disallowance of interest under Sec. 14A and to recalculate the ...
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Tribunal Adjusts Disallowance of Interest and Recalculates Expenses Based on Exempt Dividend Income Shares Value.
The Tribunal partially allowed the assessee's appeal, instructing the AO to remove the disallowance of interest under Sec. 14A and to recalculate the disallowance of other expenses under Rule 8D(2)(iii) based solely on the value of shares generating exempt dividend income. Lockdown days were excluded in the order's pronouncement.
Issues involved: Disallowance made by the AO u/s 14A of the Act r.w.r. 8D partly sustained by the Ld. CIT(A).
Analysis:
Issue 1: Disallowance made u/s 14A on account of interest as per Rule 8D(2)(ii) The assessee contended that the entire investment in shares was made using her own funds, a fact acknowledged by both the AO and the Ld. CIT(A). The disallowance of interest u/s 14A as per Rule 8D(2)(ii) was deemed unsustainable. The Tribunal directed the AO to delete this disallowance.
Issue 2: Disallowance on account of other expenses u/s 14A r.w.r. 8D(2)(iii) The assessee argued that the disallowance should be calculated based on the value of investment in shares that generated the exempt dividend income, not the total investment as done by the AO. Citing a judgment of the Hon’ble Kolkata High Court, the Tribunal directed the AO to recompute the disallowance under Rule 8D(2)(iii) considering only the value of shares that yielded exempt dividend income.
Issue 3: Exclusion of lockdown days in pronouncement of the order The Tribunal noted the delay in pronouncing the order but excluded the lockdown days due to the COVID-19 pandemic. This decision was supported by a precedent from the Mumbai Tribunal in a similar context.
Conclusion: The Tribunal partially allowed the appeal of the assessee, directing the AO to delete the disallowance of interest u/s 14A and to recalculate the disallowance of other expenses under Rule 8D(2)(iii) based on the value of shares generating exempt dividend income. The exclusion of lockdown days was considered while pronouncing the order.
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