2017 (9) TMI 1777 - AT - Income Tax

Disallowance u/s 14A - assessee contended that assessee has only received a dividend of ₹ 314 - Held that - The reliance placed upon the Delhi High Court decision in the case of Joint Investment (2015 (3) TMI 155 - DELHI HIGH COURT) that the disallowance u/s 14A cannot exceed the dividend income earned is cogent. No contrary decision of jurisdictional High Court in this regard has been produced before me. The decision of Hon ble jurisdictional High Court in the case of Godrej & Boyce 2010 (8) TMI 77 - BOMBAY HIGH COURT , in no way dispute this proposition. Accordingly hold that the disallowance u/s 14A in this case cannot exceed the dividend earned of ₹ 314. Appeal filed by the assessee stands partly allowed.

Summary

Issues: Disallowance under section 14A read with Rule 8D

Analysis:
The appeal before the ITAT Mumbai concerned the disallowance of &8377; 14,73,973 under section 14A read with Rule 8D by the Assessing Officer (AO) for the assessment year 2010-2011. The AO observed that the appellant had earned exempt income through dividends but had not made any disallowance u/s.14A in its income computation. The AO applied Rule 8D(2)(iii) to calculate the disallowance of administrative expenses. The learned CIT(A) upheld the addition, leading to the appellant's appeal before the ITAT.

Upon hearing both parties, the ITAT considered the appellant's argument that the disallowance under section 14A cannot exceed the amount of exempt income, citing decisions from the Hon'ble Delhi High Court. The appellant also referred to a previous decision in their favor by the CIT(A) for another assessment year. In contrast, the Departmental Representative relied on a decision by the jurisdictional High Court in the case of Godrej & Boyce Ltd.

The ITAT analyzed the precedents and noted that the jurisdictional High Court in the case of Principal CIT v. Ballarpur Industries Ltd. had followed the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. The ITAT agreed with the appellant's argument that the disallowance u/s 14A should not exceed the amount of dividend income earned, emphasizing that no contrary decision from the jurisdictional High Court was presented. The ITAT distinguished the decision in the case of Godrej & Boyce Ltd., stating it did not dispute this proposition.

Consequently, the ITAT held that the disallowance u/s 14A in the present case should not exceed the dividend income of &8377; 314. As a result, the appeal filed by the assessee was partly allowed, with the order pronounced on September 7, 2017.