ITAT decision on Revenue's appeal re: Rule 8D(2)(ii) & s. 14A disallowance for book profits.

The ITAT partially allowed the Revenue's appeal against the deletion of disallowance under Rule 8D(2)(ii) and u/s. 14A while computing book profits u/s. 115JB. The ITAT upheld the deletion of disallowance under Rule 8D(2)(ii) based on the assessee's interest-free funds exceeding investments generating exempt income. Regarding disallowance u/s. 14A for computing book profits, the ITAT referred the issue back to the Assessing Officer to calculate profits without applying Rule 8D. The assessee's cross objection was allowed to compute disallowance under Rule 8D(2)(iii) based on investments yielding dividend income.

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Issues Involved:
Appeal against deletion of disallowance under Rule 8D(2)(ii) and u/s. 14A while computing book profits u/s. 115JB.

Analysis:
1. Disallowance under Rule 8D(2)(ii) of I.T. Rules:
The Revenue challenged the deletion of disallowance made under Rule 8D(2)(ii) of I.T. Rules regarding interest. The ITAT Mumbai upheld the decision of the Ld.CIT(A) based on precedents like CIT v. Reliance Utilities and Power Ltd. and CIT v. HDFC Bank. The ITAT noted that the assessee had interest-free funds exceeding its investments in equity shares generating exempt income, leading to the deletion of the disallowance. The ITAT dismissed the Revenue's grounds on this issue.

2. Disallowance u/s. 14A for computing book profits u/s. 115JB:
Regarding the disallowance u/s. 14A while computing book profits u/s. 115JB, the ITAT referred to the decision of the Hon'ble Special Bench of Delhi in ACIT v. Vireet Investments Private Limited. Following this decision, the ITAT directed the issue back to the Assessing Officer to compute book profits without applying Rule 8D of I.T. Rules. The ITAT allowed the grounds on this issue for statistical purposes.

3. Cross Objection by the Assessee:
The cross objection by the assessee focused on considering only investments yielding dividend income for computing disallowance under Rule 8D(2)(iii) of I.T. Rules. Citing the decision in ACIT v. Vireet Investments Private Limited, the ITAT directed the Assessing Officer to calculate the disallowance under Rule 8D(2)(iii) by including only those investments that yielded dividend income during the relevant assessment year.

In conclusion, the ITAT partly allowed the Revenue's appeal and allowed the assessee's cross objection for statistical purposes. The delay in pronouncement was attributed to the COVID-19 lockdown, in accordance with Rule 34(5) of ITAT Rules and the orders of the Hon'ble Bombay High Court. The ITAT's order was pronounced on 30.09.2020 as per Rule 34(4) of ITAT Rules.

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