2025 (1) TMI 1285 - AT - Income Tax

AO directed to recompute section 14A disallowance at 1% on exempt income investments and verify double taxation claim

M/s. Airport Authority of India Versus DCIT, Circle-1 (1), New Delhi And (Vice-Versa)

The ITAT Delhi remanded two issues back to the AO. First, regarding disallowance under section 14A read with Rule 8D, the tribunal directed the AO to ... Disallowance u/s 14A r.w.r. 8D - expenditure relatable to exempt income - HELD THAT:- Average value of investment under the substituted Rules is to be made @1% on average value of investment as held in the case of ACIT vs Vireet Investments P Ltd [2017 (6) TMI 1124 - ITAT DELHI] wherein, it has been held that for the purpose of computation of disallowance of average value of investment the AO has to take only the instrument which gives rise to exempt income and not the investment which does not give rise the investment. In terms of above, we set aside the order CIT(A) on this issue and remand the issue back to the file of the ld AO in the following terms:- i. that the AO will find out the investment which gives rise to exempt income. ii. then the AO will re-compute the disallowance by taking those investment which give rise to exempt income @1% on average value of investment. iii. the AO will also verify the expenditure as described in proviso to Rule 8D(2)(ii) wherein, it is referred that the amount referred to in clause 1 and clause 2 would not exceed to total expenditure claimed by the assessee. The AO will find out the expenditure claimed by the assessee in terms of above and then will re-decide the issue. Appeal of the revenue is allowed for statistical purposes and order of the CIT(A) and that of AO is set aside. Disallowing additional ground raised by the assessee during the course of first appeal - not considering that the income pertaining to the concessional fee received from AAICLAS Co. Ltd has already offered for taxation in AY 2018-19 - HELD THAT:- As both the sides and going through the facts of the case, notice that the income as claimed by the assessee which is already offered for taxation in AY, needs verification. Before us, assessee could not explain how this income of Rs. 102.88 is included in this income of Rs. 232.67 offered in AY 2018-19. At one point of time, the ld counsel made submission that part income falls in AY 2018-19 and part falls in AY 2019-20. The entire controversy raised by assessee seems plausible and there should not be double taxation of an income. There is no impediment for Tribunal not to entertain new claim as held in the case of Goetze India [2006 (3) TMI 75 - SUPREME COURT]wherein as laid down the principle that appellate authority can entertain a fresh claim. Hence, we admit this additional ground and set aside the order of the CIT(A) and remand this issue back to the file of AO with following directions:- i. AO will first examine income offered for taxation for AY 2018-19 amounting to Rs. 232.67 crores, whether the same includes the income of Rs. 102.88 crores as claimed by the assessee and admitted in AY 2019-20 i.e., the present assessment year. In case this is admitted in AY 2018-19 or even part of this income is admitted in AY 2018-19, the same has to be excluded in the present AY. ISSUES PRESENTED and CONSIDEREDThe judgment involves two primary issues:1. Revenue's Appeal: The issue concerns the deletion of the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, regarding expenditure related to exempt income.2. Assessee's Appeal: The issue pertains to the non-allowance of an additional ground raised by the assessee regarding the concessional fee income of Rs. 1,02,88,14,859/-, which the assessee claims was already offered for taxation in the Assessment Year (AY) 2018-19.ISSUE-WISE DETAILED ANALYSIS1. Revenue's Appeal:Relevant Legal Framework and Precedents: The legal framework involves Section 14A of the Income Tax Act, which deals with disallowance of expenditure in relation to income not forming part of total income, and Rule 8D of the Income Tax Rules, which provides the method for determining such disallowance. The amendment to Rule 8D(2) effective from 02.06.2016 is also relevant.Court's Interpretation and Reasoning: The Court noted that the CIT(A) relied on the availability of interest-free funds exceeding the investments made by the assessee, following the precedent set by the Supreme Court in South Indian Bank Ltd. However, the Court found that the CIT(A)'s reliance on the old clause of Rule 8D(2)(ii) was misplaced due to the amendment effective from 02.06.2016.Key Evidence and Findings: The CIT(A) deleted the disallowance based on the assessee's claim of sufficient interest-free funds, but the Court emphasized the need to apply the amended Rule 8D(2)(ii), which prescribes a 1% disallowance on the average value of investments yielding exempt income.Application of Law to Facts: The Court directed the AO to identify investments yielding exempt income and recompute the disallowance at 1% of the average value of such investments, ensuring it does not exceed the total expenditure claimed by the assessee.Treatment of Competing Arguments: The Court balanced the CIT(A)'s findings with the necessity to adhere to the amended legal provisions, thus remanding the issue for proper application of the law.Conclusions: The appeal was allowed for statistical purposes, with the order of the CIT(A) set aside and the issue remanded to the AO for reevaluation.2. Assessee's Appeal:Relevant Legal Framework and Precedents: The issue involves the tax treatment of income and the procedural aspect of raising additional grounds in appeals, with reference to the Supreme Court decision in Goetze India Ltd. regarding the powers of appellate authorities to entertain fresh claims.Court's Interpretation and Reasoning: The Court acknowledged the assessee's claim of potential double taxation of the concessional fee income and recognized the Tribunal's ability to entertain new claims, as established by the Supreme Court.Key Evidence and Findings: The assessee contended that part of the concessional fee income was already taxed in AY 2018-19, but lacked detailed bifurcation. The CIT(A) dismissed the additional grounds due to procedural constraints, but the Court found merit in the assessee's claim.Application of Law to Facts: The Court directed the AO to verify whether the income of Rs. 102.88 crores was included in the income already taxed in AY 2018-19 and to exclude it from the current assessment year if confirmed.Treatment of Competing Arguments: The Court considered the procedural limitations cited by the CIT(A) but prioritized the substantive issue of preventing double taxation.Conclusions: The appeal was allowed for statistical purposes, with the issue remanded to the AO for verification and appropriate adjustment.SIGNIFICANT HOLDINGSCore Principles Established: The judgment reinforces the principle that procedural errors should not result in substantive injustice, such as double taxation. It also emphasizes the necessity of applying the correct legal framework, particularly post-amendment rules.Final Determinations on Each Issue:1. Revenue's Appeal: The Court remanded the issue to the AO to apply the amended Rule 8D(2)(ii) correctly and recompute the disallowance related to exempt income.2. Assessee's Appeal: The Court remanded the issue to the AO to verify the inclusion of the concessional fee income in the previous assessment year and adjust the current assessment accordingly to prevent double taxation.