Tribunal partially allows appeal, accepts Rs. 24.50 Lacs disallowance under Section 14A, directs income recomputation.

The appeal was partly allowed. The Tribunal accepted the assessee's computation of disallowance under Section 14A at Rs. 24.50 Lacs and directed the AO to recompute the income. Additionally, the AO was instructed to grant interest under Section 244A as per the law.

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Issues Involved:
1. Disallowance under section 14A of the Income-tax Act read with Rule 8D(iii).
2. Non-granting of interest under section 244A of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D(iii):

The primary grievance of the assessee was the disallowance of indirect expenditure under Section 14A, calculated as per Rule 8D(2)(iii). The initial disallowance of interest under Rule 8D(2)(ii) was not in dispute.

This was the second round of litigation. In the first round, the Tribunal had remanded the matter back to the Assessing Officer (AO) with specific directions to compute the disallowance of administrative expenses as per Rule 8D, ensuring that the disallowance did not exceed the actual expenditure claimed by the assessee apportioned to exempt income. The AO was to compute the total expenditure for composite activities resulting in both taxable and non-taxable income and restrict the disallowance to the actual total claim if it exceeded the computed disallowance under Rule 8D.

Upon reassessment, the AO framed the assessment under Section 143(3) read with Section 254 on 15/12/2017. The assessee provided a detailed breakdown of investments and apportioned an aggregate expenditure of Rs. 16,51,524/- towards exempt income. This included Telephone Expenses (Rs. 35,000/-), Stationery Expenses (Rs. 2,04,000/-), and Salaries (Rs. 14,12,524/-) based on the proportionate time spent by certain employees.

The AO, however, was not satisfied with the apportionment and computed the disallowance as per Rule 8D, resulting in a disallowance of Rs. 125.67 Lacs, being 0.5% of average investments of Rs. 251.35 Crores. After adjusting the assessee's suo-moto disallowance, the differential amount of Rs. 109.16 Lacs was added to the income.

Upon further appeal, the CIT(A) directed the AO to exclude those investments that did not yield any exempt income during the year, reducing the disallowance to Rs. 123.02 Lacs. Still aggrieved, the assessee appealed further.

The Tribunal found that the assessee's method of apportioning expenses was fair and reasonable. The assessee had identified composite expenses and apportioned them in the ratio of exempt income to total receipts. The Tribunal accepted the assessee's proposed disallowance of Rs. 24.50 Lacs as fair, reasonable, and scientific. Consequently, the net disallowance was computed to be Rs. 7,98,476/- after considering the suo-moto disallowance already made by the assessee. The AO was directed to recompute the income accordingly.

2. Non-granting of Interest under Section 244A:

The assessee was aggrieved by the non-grant of interest under Section 244A from the first day of the assessment year to the date of refund. The Tribunal directed the AO to grant interest in accordance with the law.

Conclusion:

The appeal was partly allowed. The Tribunal accepted the assessee's computation of disallowance under Section 14A at Rs. 24.50 Lacs and directed the AO to recompute the income. Additionally, the AO was instructed to grant interest under Section 244A as per the law.

Order Pronounced on 22nd October, 2020.

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