ITAT Upholds CIT(A) Decisions: Limits Disallowance to 5% Dividend Income, Excludes from Book Profits Amid COVID Delay.

The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decisions. It upheld the restriction of disallowance under Section 14A read with Rule 8D(2)(iii) to 5% of dividend income and confirmed no disallowance was needed under Rule 8D(2)(ii) due to sufficient interest-free funds. Additionally, the ITAT agreed that disallowance under Section 14A cannot be added to book profits for Section 115JB purposes, referencing established judicial precedent. The delay in pronouncing the order was justified due to the COVID-19 pandemic, with the ITAT excluding the lockdown period from the pronouncement requirement. The order was pronounced on 06/07/2020.

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Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D(2)(ii).
2. Restriction of disallowance under Section 14A read with Rule 8D(2)(iii) to 5% of the dividend income.
3. Deletion of disallowance under Section 14A read with Rule 8D(2)(ii) in the context of Clause (f) to Explanation-1 to Section 115JB of the Act.

Detailed Analysis:

Issue Nos. 1 & 2:
The revenue challenged the CIT(A)'s decision to partly allow the assessee's claim under Section 14A read with Rule 8D(2) and Rule 8D(2)(iii). The CIT(A) found that the assessee did not justify the allocation of 1% of expenses for maintaining investments, thus rejecting the assessee's administrative expense disallowance as insufficient. The CIT(A) referred to the Hon'ble ITAT's decision in the assessee's own case for AY 2009-10 to AY 2011-12, which was upheld by the Hon'ble Bombay High Court, and restricted the disallowance to 5% of the dividend income. The CIT(A) noted that the investments had not changed since 31.03.2010, and the assessee had sufficient interest-free funds to cover the investments, thus no disallowance was required under Rule 8D(2)(ii). Consequently, the ITAT upheld the CIT(A)'s decision, finding it consistent with previous rulings and judicial precedent.

Issue No. 3:
This issue pertained to the deletion of disallowance under Section 14A read with Rule 8D(2)(ii) in the context of Clause (f) to Explanation-1 to Section 115JB. The CIT(A) relied on the Bombay High Court's ruling in CIT vs. Bengal Finance & Investments Pvt. Ltd., which held that disallowance under Section 14A cannot be added to book profit for Section 115JB purposes. Additionally, the CIT(A) referenced the Special Bench of the Delhi Tribunal's decision in ACIT vs. Vireet Investment (P.) Ltd., which stated that the AO cannot adjust net profit for Section 115JB purposes except as specified in the Explanation to Section 115JB. The ITAT found no distinguishing facts or contrary law and upheld the CIT(A)'s decision, confirming that disallowance under Section 14A cannot be imported into the computation of book profits under Section 115JB.

Delay in Pronouncement of Order:
The delay in pronouncing the order was due to the nationwide lockdown imposed on 24/03/2020 due to the COVID-19 pandemic, which disrupted judicial work. The ITAT cited the Hon'ble Supreme Court's and Hon'ble Bombay High Court's orders extending limitations and interim orders due to the pandemic. The ITAT decided to exclude the lockdown period from the 90-day pronouncement requirement, deeming the delay justified under the exceptional circumstances.

Conclusion:
The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues, and pronounced the order on 06/07/2020 after considering the exceptional circumstances caused by the COVID-19 pandemic.

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