Air India Limited Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that disallowance under rule 8D(2)(ii) r.w.s. 14A of the Income Tax Rules should be made on average value of investment yielding exempt income and not on the basis of quantum of investment based on market value. Disallowance restricted accordingly.
Facts- In course of assessment proceeding, the Assessing Officer (AO) noticed that, in the year under consideration, the assessee had received exempt income, by way of dividend, amounting to Rs.4,58,77,493/-. Whereas, the assessee has not made any suo motu disallowance of expense attributable to the earning of exempt income. AO proceeded to compute the disallowance, by applying the methodology provided under Rule 8D. While doing so, he made a disallowance of Rs.68,22,862/- under Rule 8D(2)(ii). Though, the assessee contested the afore-said disallowance before learned first appellate authority, however, it was unsuccessful.
Conclusion- Held that the assessee’s limited grievance is to the effect that disallowance under Rule 8D(2)(ii) r.w.s. 14A, should be made on the average value of investments, yielding exempt income during the year. It is the say of the assessee that such investment actually works out to Rs.66,11,88,530/-, whereas, the A.O. has worked out the quantum of investment based on market value. We find substantial merit in the submissions of the assessee. On a perusal of the facts on record, as well as, the order of the co-ordinate bench in assessee’s own case in A.Y. 2017-18 (supra), it is observed that the average value of investments, giving rise to exempt income during the year under consideration works out to Rs.66,11,81,530/-. Therefore, in terms of Rule 8D(2)(ii), the disallowance @ 1% would work out to Rs.66,11,815/-. That being the case, we direct the A.O. to restrict the disallowance to Rs.66,11,815/-.
