India Cements Ltd Vs DCIT (ITAT Chennai)
ITAT Chennai held that disallowance in terms of section 14A of the Income Tax Act read with rule 8D restricted to the extent of investment which yielded exempt income. Accordingly, disallowance restricted and appeal partly allowed.
Facts- AO observed from the balance-sheet that the assessee held substantial investments which were capable of yielding tax-free income and therefore, according to him, the expenditure incurred in relation to earning such exempt income was to be disallowed u/s. 14A of the Act. AO also observed that, the assessee didn’t derive any dividend income from these investments, but had claimed profit to the extent of ₹1,07,44,451/-earned from sale of Mutual Funds as exempt u/s.10(39) of the Act. The AO accordingly show caused the assessee to explain as to why expenditure incurred for earning such exempt income should not be disallowed, in accordance with Rule 8D. The AO however didn’t agree to the objections raised by assessee and computed disallowance of ₹1,07,44,451/- under Rule 8D, which was added back. On appeal, CIT(A) confirmed the action of the AO. Aggrieved, the assessee is in appeal before us.
Conclusion- Held that, the disallowance in terms of Rule 8D was required to be computed with reference to only those investments which yielded the exempt income of ₹1,07,44,451/- during the relevant year. Having regard to the amended Rule 8D, the AO is directed to recompute and restrict the disallowance to 1% of the monthly average of exempt income yielding investments. Needless to say, the assessee shall provide the relevant month-wise details of investments to the AO to enable him to re-compute the disallowance.
