Tribunal Remands Disallowance for Re-Calculation, Citing COVID-19 Delays for Excluding Time Limit in Order Pronouncement.

The ITAT allowed the appeal for statistical purposes, remanding the disallowance under Section 14A for re-computation based solely on investments yielding exempt income for the relevant year. The Tribunal acknowledged procedural delays in pronouncing the order, attributing them to COVID-19 lockdown disruptions, and excluded this period from the time limit calculation.

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Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 for Assessment Year 2014-15.

Analysis:
The appeal was filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) – 2, Mumbai, arising from the order passed by the ACIT, Cir-1 (2)(1), Mumbai under section 143(3) of the Income Tax Act, 1961. The assessee, a consultancy company in insurances and risk management, declared total income at &8377; 36,39,62,800/- for A.Y. 2014-15. An addition of &8377; 17,72,201/- was made under section 14A of the Act, which was later restricted to &8377; 12,61,787/- by the Ld. CIT(A). The appeal was filed challenging this disallowance.

During the assessment, it was found that the average value of tax-free investment was &8377; 25,23,57,489/-, and the assessee earned dividend income of &8377; 95,17,274/-. The AO applied Rule 8D of the Act to compute the disallowance, considering all investments made by the assessee, not just those yielding exempt income. The Ld. CIT(A) upheld the addition under Rule 8D(2)(iii) but directed to restrict the disallowance to &8377; 1,685/- and &8377; 12,61,787/- under Rule 8D(2)(i) & 8D(2)(iii) respectively. The Tribunal noted discrepancies in the application of Rule 8D and directed the AO to recompute the disallowance based only on investments yielding exempt income for the year under consideration.

The Tribunal found that the AO's computation under Rule 8D was incorrect as it considered all investments, not just those yielding exempt income. The judgment relied upon by the assessee was not followed accurately. The Tribunal, therefore, allowed the appeal for statistical purposes and remanded the issue to the AO for re-computation of the disallowance under Section 14A based on investments yielding exempt income in the relevant year.

The Tribunal also addressed a procedural issue regarding the delay in pronouncing the order beyond 90 days. Citing the exceptional circumstances of the COVID-19 lockdown and subsequent disruptions in judicial functioning, the Tribunal excluded the lockdown period while computing the time limit for pronouncing the order, in line with the directions of the Hon’ble Supreme Court and Bombay High Court. The order was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rule 1963, considering the extraordinary situation caused by the pandemic.

In conclusion, the assessee's appeal was allowed for statistical purposes, and the issue of disallowance under section 14A was remanded for re-computation based on investments yielding exempt income during the relevant year. The Tribunal also addressed the procedural delay in pronouncing the order, attributing it to the extraordinary circumstances of the COVID-19 lockdown.

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