2016 (1) TMI 636 - AT - Income Tax

Disallowance made under section 14A read with Rule 8D - Held that - In the case of the assessee, the Assessing Officer disallowed under section 14A read with Rule 8D, whereas the actual dividend income received by the assessee and claimed as exempt income under section 10(34). Following the decision of in the case of M/s. Daga Global Chemicals Pvt.Ltd. 2015 (1) TMI 1204 - ITAT MUMBAI we are of the view that disallowance under section 14A read with Rule 8D should not exceed the exempt income claimed by the assessee. The Mumbai Bench in its order sustained the disallowance on applicability of provisions of section 14A read with Rule 8D. However, the alternative claim of the assessee was that disallowance it at all should be made, it should be restricted to exempt income earned and not beyond that. Thus, we direct the Assessing Officer to restrict the disallowance to the exempt income. The alternative ground of appeal of the assessee is allowed. - Decided partly in favour of assessee in part.

Summary

Issues:
Recall of order for adjudicating alternative ground under section 14A read with Rule 8D.

Detailed Analysis:
The Appellate Tribunal ITAT Chennai addressed a Miscellaneous Petition filed by the assessee seeking to recall the order passed in ITA No.57/Mds/2015 to consider the alternative ground no.7 related to the disallowance made under section 14A read with Rule 8D of the Income Tax Rules. The Tribunal acknowledged that while disposing of the appeal, it inadvertently omitted to decide the alternative ground raised by the assessee (Para 1-2).

The alternative ground raised by the assessee contended that the disallowance made under section 14A was incorrect and unsustainable in law. The Departmental Representative did not object to recalling the order to address the alternative ground left unadjudicated (Para 3-4).

The Tribunal recognized the mistake in not disposing of the alternative ground and decided to recall the order for the limited purpose of addressing this issue. The Miscellaneous Petition filed by the assessee was allowed accordingly (Para 5).

Regarding the merits of the alternative ground, the counsel for the assessee argued that the disallowance under section 14A should be restricted to the exempt income earned, which was &8377; 5,55,455, even though the Assessing Officer had disallowed a higher amount. The counsel relied on precedents to support this contention (Para 6).

After considering the arguments from both parties, the Tribunal referred to a decision by the Mumbai Bench where it was held that the disallowance under section 14A read with Rule 8D cannot exceed the exempt income. Applying this principle, the Tribunal directed the Assessing Officer to restrict the disallowance to the exempt income claimed by the assessee, i.e., &8377; 5,55,455. Consequently, the alternative ground of appeal of the assessee was allowed, and the final result of the appeal was that the assessee's appeal was partly allowed, while the Revenue's appeal was dismissed (Para 7-8).