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2021 (1) TMI 45 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D(2)(iii) - as per assessee CIT (A) has erred in upholding the action of AO to disallow expenses incurred towards earning exempt income in accordance with Rule 8D(2) (iii) of the Income Tax Rules (the Rules) and the disallowance made should have been restricted to the suo moto disallowance made by the assessee or the same should have been appropriately reduced - HELD THAT:- CIT (A) has directed the AO to recompute the disallowance under rule 8D(2)(iii) after excluding investment in growth schemes of Mutual Funds, which are not capable of generating any exempt income - In our considered view, the findings of the Ld. CIT(A) are based on the law laid down by the Hon’ble Supreme court and the various High Courts. Hence, we are of the considered view that the authorities below have rightly invoked Rule 8D(2)(iii) of the Rules for determining the disallowance. Average investment for the purpose of calculating disallowance under rule 8D(2)(iii) should include only those investments from which the assessee has earned exempt income during the year - CIT (A) has rejected the plea of the assessee holding that the same cannot be accepted in view of the decision of the Special Bench of the ITAT, Delhi in the case of ACIT and another vs. Vireet Investments Pvt [2017 (6) TMI 1124 - ITAT DELHI] - Under rule 8D(2)(iii) disallowance is made equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year - AO has brought on record the fact that the assessee has worked out 20% of the time of two employees out of total strength of 90 employees of head office only as expenses attributable to investment activity and has not provided any justification for such allocation. Hence since the AO had computed the disallowance under rule 8D(2)(iii), the Ld. CIT(A) has rightly upheld the action of AO in applying Rule 8D(2)(iii) of the Rules, for determining disallowance. However, the Ld. CIT(A) has rejected the contention of the assessee that only those investments from which exempt income has been earned during the year may be included for the purpose of determining disallowance under rule 8D(2)(iii) of the Rules by following the decision of the special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra) CIT (A) has decided this issue contrary to the decision of the Special Bench of the Delhi Tribunal. The Special Bench has categorically held in the said case that while computing disallowance under Rule 8D(2)(iii), only those investments are required to be taken into consideration which yielded exempt income during the year. Accordingly, we set aside the order passed by the Ld. CIT(A) and direct the AO to recomputed the disallowance u/s 14A r.w.r 8D(2)(iii). Disallowance u/s 14A r.w.r. 8D from the book profit u/s 115JB - HELD THAT:- As pointed out by the Ld. counsel, this issue is covered in favour of the assessee by the judgment of the Hon’ble jurisdictional High Court and the decision of the Special Bench of the Delhi Tribunal in Vireet Investments Pvt [2017 (6) TMI 1124 - ITAT DELHI]. Since, the findings of the Ld. CIT (A) are in accordance with the ratio laid down by the Hon’ble Bombay High Court and the decision of the Special Bench, we do not find any reason to interfere with the same. Hence, we dismiss this ground of appeal of the revenue. Allowing loss claim on sale of Mutual Funds and equity shares on the basis of revised statements by CIT-A - HELD THAT:- CIT (A) has decided this issue in favour of the assessee following the ratio laid down by the Hon’ble Bombay High Court in the case of M/s Pruthvi Brokers and shareholder Pvt. Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] - So far as the judgment of the Hon’ble Supreme Court in the case of Goetze (India) [2006 (3) TMI 75 - SUPREME COURT] is concerned the issue involved in the said case was the power of assessing authority an not the powers of appellate authorities. Since the decision of the Ld. CIT(A) is in accordance with the judgment of the Hon’ble jurisdictional High Court, we do not find any infirmity in the order passed by the Ld. CIT (A) to interfere with.
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