INCOME TAX ACT, 1961

Section 14A read with Rule 8D of Income Tax Rules, 1962

Disallowance under section 14A - Expenditure against exempt income - Whether only investments yielding exempt income or total investments to be considered for purpose of average value of investments -

Assessee-company made suo motu disallowance under section 14A. AO found that some of investments were clubbed under the head 'Inventory' in balance sheet and same were not considered by the assessee in working out the disallowance under section 14A. He, therefore, rejected the assessee's calculation and computed the disallowance under section 14A consisting of an amount towards interest expenditure and an amount, being half percent of average investments under rule 8D(2)(iii). On appeal, CIT(A) confirmed the order of the AO. Held: In view of various decisions of Tribunal and High Court, average value of investments, for the purposes of rule 8D(2)(iii), should be confined to those investments in respect of which exempt income is earned, and not the total investments. Accordingly, matter was remanded to AO for re-computing disallowance under rule 8D(2)(iii) by considering only such investments in calculating the average value of investments, which yielded exempt income during the year.

REFERRED : ACB India Ltd. v. Asstt. CIT (2015) 374 ITR 108 (Del) : 2015 TaxPub(DT) 1966 (Del-HC) and Asstt. CIT v. Vireet Investment (P.) Ltd. (2017) 165 ITD 27 (Del) (SB) : 2017 TaxPub(DT) 1760 (Del-Trib)

FAVOUR : Matter remanded

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 254(1)

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