The
Income Tax Appellate Tribunal
(ITAT) in the PwC case held that dividend-bearing securities should be
considered for disallowance under Rule 8D(2)(iii) of the Income Tax
Rules.
The appellant PricewaterhouseCoopers Private Limited is in the
business of providing, inter alia, management consultancy services, and
also accounting and business advisory services. The
Company’s operations
are segregated into different lines of services like advisory, taxation
services. The assessee provides both onshore as well as offshore
services in the wide areas of Consulting, Deals, Forensic Services,
Government Reforms and Infrastructure Developments (GRID), Accounting
Advisory, Risk Advisory Services, Tax, and Regulatory Services.
The Company filed a revised return of income determining total income. During the Assessment Year under consideration, the
AO,
pursuant to the Directions of the Dispute Resolution Panel (DRP) passed
the final assessment order under section 143(3) read with Section
144C/144C(5) of the Income-tax Act, 1961 wherein adjustments/variations
were made, thereby computing the total assessed income.
During the year under consideration, the assessee earned exempt
dividend income amounting to Rs. 21.01 crores from
PricewaterhouseCoopers Service Delivery Centre (Kolkata) Pvt. Ltd. (PwC
SDC) which is exempt under Section 10(34) of the Act. The Company
voluntarily disallowed a sum of Rs. 30,000/- under section 14A of the
Act in the computation of total income, being expenditure attributable
to earning of such exempt income and same is also certified by a
Chartered Accountant, which is reported in clause 21(h) of the tax audit report for the assessment year under consideration.
AO ignored the
contention of the assessee and arrived at an amount for disallowance
under Section 14A of the Act by applying the formula provided in Rule 8D
of the Income-tax Rules. Since the assessee had already offered to tax
Rs. 30,000/- as expenses incurred towards earning exempt income, the
AO added back a further amount.
The assessee raised the issue that on the facts and in law and in the circumstances of the case, the DRP/
AO
erred in making a disallowance under Section 14A read with Rule
8D(2)(iii) of the Income Tax Rules 1962 as against the disallowance made
by the appellant in the Return of Income.
The
ITAT consists of a
Judicial Member S. Godara and an Accountant Member A. L. Saini held
that dividend-bearing securities should be considered for disallowance
under Rule 8D(2)(iii) of the Income Tax Rules.
“Therefore, we direct the assessing officer to compute the
disallowance under Rule 8D(2)(iii) of the Rules by taking into account
dividend-bearing securities only. For statistical purposes, the grounds
raised by the assessee are allowed,” the tribunal said.
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