2017 (7) TMI 1067 - AT - Income Tax

Disallowance u/s 14A - Held that - As the assessee earned exempt income of ₹ 1,70,000/- only during this Assessment Year and the Assessing Officer by invoking the provision of Section 14A made disallowance at ₹ 54,66,813/-. The Hon ble Delhi High Court in the case of Joint Investment Private Limited 2015 (3) TMI 155 - DELHI HIGH COURT held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. In the case on hand since the assessee received dividend income of ₹ 1,70,000/- as recorded in the Assessment Order the disallowance should not be more than ₹ 1,70,000/-. Thus we direct the Assessing Officer to restrict the disallowance to the extent of dividend income i.e. ₹ 1,70,000/- and delete the balance amount and compute the incomes accordingly. - Decided in favour of assessee in part.

Summary

Issues:
1. Disallowance of expenditure under Section 14A for earning dividend income.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax Appeals -10, Mumbai for the Assessment Year 2010-11. The notice issued to the assessee was returned unserved, leading to the disposal of the appeal in the absence of the appellant. The Assessing Officer disallowed &8377; 54,66,813/- under Section 14A for earning dividend income, which was upheld by the Ld.CIT(A). However, upon review, it was found that the assessee earned only &8377; 1,70,000/- as exempt income during the Assessment Year. Citing precedents, the Tribunal noted that the disallowance under Section 14A should not exceed the exempt income. Relying on decisions of the Delhi High Court and the Punjab and Haryana High Court, the Tribunal directed the Assessing Officer to restrict the disallowance to the extent of dividend income received by the assessee, i.e., &8377; 1,70,000/-, and delete the excess amount for computing the incomes accordingly.

In conclusion, the Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to limit the disallowance under Section 14A to the amount of dividend income received by the assessee, as recorded in the Assessment Order. The judgment emphasized that the disallowance should not exceed the exempt income, as established by relevant legal precedents.