Disallowance 14A Rule 8D3-Computation of total Assets include current liabilities also

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ITAT Delhi in a recent judgment has remanded the case to the Assessing Officer noticing that the AO for the purpose of disallowance u/s 14A computed incorrect value of “total assets” as per Rule 8D by excluding current liabilities.

Case Details:

ITA No.130/Del/2013 ; CO No.98/Del/2013 Assessment Year : 2009-10

DCIT vs. Desiccant Rotors International Pvt. Ltd

Date of order: 10/03/2016

Facts of the case:

The assessee was engaged in manufacturing of heat recovery and environment control systems such as Rotors, heat recovery wheels, energy recovery ventilators, etc. The assessee had earned tax free income. The Assessing Officer noticed that the assessee made investment to the tune of Rs.33.72 crore and paid interest and bank charges amounting to Rs.42.95 lac. Invoking the provisions of Rule 8D, the AO computed disallowance for the both interest and bank charges. However CIT(A) deleted the disallowance related to bank charges.

However, the assessee filed cross objection challenging the disallowance u/s 14A by taking incorrect figures of average total assets.

The Rule 8D(3) provides as under:

“For the purposes of this rule, the “total assets” shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.”

The assessee’s  grievance was that while calculating the amount of `Average assets’ for the purposes of disallowance, the AO computed the amount of ‘Total assets’ by excluding current liabilities from the value of assets.

Excerpt from ITAT Judgment:

The ld. CIT(A) echoed the action of the AO in reducing the amount of `current liabilities’ from the value of assets both at the beginning and at the close of the year in the computation of average value of assets. Though the AO has reproduced the definition of ‘total assets’ given in Rule 8D(3), but, the calculation so made by him appears to have gone in a different direction. Under such circumstances, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO.

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