Addition as per clause(iii) of sub-rule(2) of Rule 8D of the Income Tax Rules

The Income Tax Appellate Tribunal has ruled on an appeal concerning disallowances made under Section 14A of the Income Tax Act, specifically relating to clause (iii) of sub-rule (2) of Rule 8D. The tribunal found that disallowances made on an ad-hoc basis and solely due to tax arbitrage were not justified. Consequently, the Assessing Officer was directed to delete a disallowance of Rs. 1,94,350/-, allowing the appeal partly.

IN THE INCOME TAX APPELLATE TRIBUNAL
[DELHI BENCH: ‘E’ NEW DELHI]
BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
A N D
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No. 4090/Del/2017
(Assessment Year: 2012-13)
(THROUGH VIDEO CONFERENCING)

Mercury Fabric Creations Pvt.
Ltd.,
D – 58, Phase – I,
Okhla Industrial Area,
New Delhi – 110 020.
PAN : AAACM0284D
(APPELLANT)

vs

Income Tax Officer,
Ward : 16 (2)
New Delhi.
(RESPONDENT)

Assessee by : Ms. Gunjan Jain, C.A.;
Department by: Mr. Gaurav Pundir, Sr.DR;

Date of Hearing 27.07.2021
Date of Pronouncement 27.07.2021

ORDER

This appeal is filed by the assessee against the order of the ld.Commissioner of Income Tax (Appeals)–33, New Delhi, dated 11.04.2017 for assessment year 2012-13.

2. Briefly stated the facts shows that Assessee Company is carrying on the business of trading of fabrics and doing job work. It filed its return of income on 28.09.2012 declaring income of Rs.29,91,580/-. The assessment was passed under Section 143(3) of the Income Tax Act, 1961 (the Act) by the ld. Assessing Officer on 12.03.2015 determining total income of the assessee at Rs.1,12,21,078/-. He made several disallowances, which on appeal by the ld.

3. The first ground of appeal is against the disallowance under Section 14A of the Act confirmed by the ld. CIT (Appeals) to the extent of upholding of the disallowance by the ld. CIT (Appeals) of Rs.50,000/- being 0.5% on the average value of investment.

4. Merely the tax arbitrage cannot be the reason to make disallowance under Section 40A (2) (b) of the Act. Valuation of perquisite if shown properly by directors in their tax returns and if it is less than Rent paid by the assesse to the land lord in whose house the directors are residing, it is the duty of AO of the directors to see whether perquisites are correctly valued or not. It cannot straight away result in to disallowance u/s 40A (2) of the Act unless it is shown that it is unreasonable and excessive having regard to the fair market value of such service or legitimate needs of the business of the assesse.

5.The disallowance is also made on ad-hoc basis. Therefore, we reverse the order of the lower authorities and direct the Assessing Officer to delete the disallowance of Rs.1, 94,350/-.

6.In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on conclusion of hearing on 27/07/2021.

Please find attached the enclosed file for the full judgement