2017 (3) TMI 1744 - AT - Income Tax

Disallowance u/s 14A - suo moto disallowance - HELD THAT - Assessee has reported tax free income by way of dividend to the extent of ₹ 10,188/- only. In view of the decision of Hon ble Gujarat High Court in the case of CIT vs. Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT and Joint Investment Pvt. Ltd. vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT the disallowance cannot exceed the exempt income. The assessee himself has computed expenditure attributable to exempt income more than the exempt income itself. Therefore, no further disallowance is called for. CIT(A), in our view, has rightly concluded the issue. We thus decline to interfere. - Decided against revenue

Summary

Issues:
Challenge to disallowance made under s.14A of the Act by the Revenue.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax(Appeals) concerning the assessment order passed by the Assessing Officer under S. 143(3) of the Income Tax Act, 1961 for AY 2013-14. The Revenue challenged the action of the CIT(A) in relation to the disallowance made under s.14A of the Act amounting to ?76,44,797. The AO had computed a disallowance of ?89,50,116 as per the formula prescribed under Rule 8D of the Income Tax Rules. The AO observed that the assessee had suo moto made a disallowance of ?13,05,319 while filing the return of income. Consequently, the AO computed an additional disallowance of ?76,44,797 and added it to the total income of the assessee. However, the CIT(A) deleted the additional disallowance of ?76,44,797. The Revenue appealed against this decision of the CIT(A).

The Tribunal noted that the assessee had reported tax-free income through dividends amounting to ?10,188 only. Referring to various judgments, including those of the Hon'ble Gujarat High Court and the Hon'ble Supreme Court, it was established that the disallowance under Section 14A r.w. Rule 8D cannot exceed the exempt income itself. As the assessee had already computed expenditure attributable to exempt income more than the exempt income itself, no further disallowance was deemed necessary. The Tribunal agreed with the CIT(A)'s conclusion on the issue and declined to interfere. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the decision of the CIT(A) regarding the disallowance made under s.14A of the Act. The Tribunal emphasized that the disallowance cannot exceed the exempt income itself, as per established legal precedents. The Tribunal found that the CIT(A) had rightly concluded the issue, and therefore, declined to interfere with the decision. The appeal of the Revenue was consequently dismissed.