2022 (1) TMI 335 - AT - Income Tax

Tribunal directs AO to consider only tax-free income investments for disallowance under

Continental Device India Ltd. Versus ACIT, Circle0 6 (2), New Delhi

The tribunal partially allowed the appeal of the assessee. It directed the Assessing Officer to consider only investments yielding tax-free income for ... Addition u/s 14A r.w.r. 8D - enhancing the book profits u/s 115JB for Addition u/s 14A r.w.r. 8D - HELD THAT:- When the own funds of the assessee exceed the investments, the presumption is that the assessee made the investment from out of their own funds, though all the funds are held in the same account. Record does not reveal the quantum of the investment which yielded exempt income. We therefore, restore the issue to the file of the learned Assessing Officer to consider only such investments which yielded the tax free income, but not the entire investments. Further in Vireet Investments Private Limited [2017 (6) TMI 1124 - ITAT DELHI], it is held by the Special Bench of the Tribunal that the disallowance made under section 14A of the Act read with Rule 8D of the Rules cannot be considered for the purpose of enhancing the book profits under section 115JB of the Act. Learned Assessing Officer will take note of it. Accordingly, ground No. 1 is allowed and ground No. 2 is allowed for statistical purpose. Addition invoking the provisions of section 50C - scope of amendment in section 50C - HELD THAT:- Coming to the retrospective nature of the amendment to section 50C of the Act by inserting the proviso, we find that in the case of CIT vs. Shri Vummudi Amarendran [2020 (10) TMI 517 - MADRAS HIGH COURT] as held that the amendment made by the Finance Act, 2016 inserting proviso to section 50C is clarificatory in nature and therefore, had the retrospective application.. Same was the view taken by the Tribunal in the case of ITO vs. Modipon [2015 (1) TMI 609 - ITAT DELHI],SH. ALOK SWARUP, [2020 (9) TMI 921 - ITAT DELHI] and AMIT BANSAL [2018 (11) TMI 1699 - ITAT DELHI] Thus we hold amendment in section 50C by inserting proviso is curative and retrospective in nature and has to be given effect thereof in this case. Issues:1. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules2. Enhancement of book profits under section 115JB of the Act by the amount of disallowance3. Addition under section 50C of the Act for property soldAnalysis:1. The first issue pertains to the disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The assessee argued that only investments yielding tax-free income should be considered for disallowance, not the entire investments. The tribunal referred to the principle established by the jurisdictional High Court and held that investments generating exempt income should be considered for disallowance. The tribunal also considered the ratio where the own funds of the assessee exceeded the investments, implying the investments were made from own funds. The tribunal directed the Assessing Officer to consider only investments yielding tax-free income for disallowance and not the entire investments.2. The second issue involves the enhancement of book profits under section 115JB of the Act due to the disallowance made under section 14A of the Act. The tribunal cited a Special Bench decision stating that disallowance under section 14A cannot be used to enhance book profits under section 115JB. Consequently, ground No. 1 was allowed, and ground No. 2 was allowed for statistical purposes.3. The third issue concerns the addition under section 50C of the Act for a property sold by the assessee. The Assessing Officer added an amount based on the variance between the consideration mentioned in the sale deed and the collector's rate. The assessee argued that the retrospective effect of the amendment to section 50C should be considered, citing various judicial decisions. The tribunal examined the retrospective nature of the amendment and held that the proviso to section 50C is clarificatory and retrospective. The tribunal relied on decisions of the High Court and Tribunal to support this view. Consequently, the tribunal allowed ground No. 3 of the appeal.In conclusion, the tribunal partially allowed the appeal of the assessee and made specific rulings on each issue raised, providing detailed reasoning based on legal principles and precedents.