DCIT Vs Outsourcepartners International Pvt. Ltd (ITAT Delhi)
No Section 14A Disallowance Where Growth Funds Yield Only Taxable Gains
The Delhi ITAT dismissed both the Revenue’s and the assessee’s cross appeals in a case involving disallowance under Section 14A read with Rule 8D. The Tribunal upheld the CIT(A)’s deletion of ₹2.13 crore disallowance, holding that the computation mechanism under Rule 8D failed on facts. The assessee’s investments were mainly in mutual fund Growth Plans, which yielded only appreciation taxable as capital gains and were not capable of earning exempt income. The Daily Dividend Plan investments were made and redeemed within the same month, rendering annual average computation under Rule 8D impracticable.
The Tribunal noted that no direct or indirect expenditure or interest attributable to exempt income was identified and that the exempt dividend income itself was negligible. Accordingly, no disallowance under Section 14A was sustainable. On the assessee’s cross appeal, the Tribunal held that issues relating to CPC’s Section 143(1) processing had to be pursued separately under the statutory appeal mechanism and could not be adjudicated in the appeal against regular assessment under Section 143(3). Consequently, both appeals were dismissed, confirming full relief on the Section 14A issue.
FULL TEXT OF THE ORDER OF ITAT DELHI
