2017 (7) TMI 1277 - HC - Income Tax

Disallowance u/s. 14A - expenditure in terms of section 14A r.w.r. 8D cannot exceed the exempt income itself - HELD THAT - The assessee had earned exempt income of Rs. 55, 604/-. As against that the Assessing Officer had worked out the disallowance of expenditure under section 14A read with Rule 8D to Rs. 1, 02, 82, 049/-. The Tribunal while restricting the disallowance to Rs. 55, 604/- relied on the decision of Delhi High Court in case of Joint Investments (P) Ltd vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT holding that disallowance of expenditure in terms of section 14A read with Rule 8D cannot exceed the exempt income itself. Our High Court has also adopted the similar view in case of Commissioner of Income Tax vs. Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT.

Summary

Issues:
Challenge to ITAT judgment on disallowance of expenditure under section 14A of the Income Tax Act.

Analysis:
The Revenue challenged the judgment of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance of expenditure under section 14A of the Income Tax Act. The questions raised for consideration were whether the ITAT was justified in restricting the disallowance made to the extent of exempt income of &8377; 55,604 and whether the ITAT was justified in not considering the interest paid on borrowed funds amounting to &8377; 1,45,52,632.

During the relevant period for the assessment year 2008-09, the assessee earned exempt income of &8377; 55,604. However, the Assessing Officer calculated the disallowance of expenditure under section 14A of the Act read with Rule 8D to be &8377; 1,02,82,049. The Tribunal limited the disallowance to the exempt income of &8377; 55,604, citing the decision of the Delhi High Court in the case of Joint Investments (P) Ltd vs. CIT and the High Court's view in the case of Commissioner of Income Tax vs. Corrtech Energy Pvt. Ltd.

The High Court dismissed the tax appeal, upholding the Tribunal's decision to restrict the disallowance of expenditure to the extent of the exempt income earned by the assessee. The Court's decision was in line with the interpretation that the disallowance under section 14A read with Rule 8D cannot exceed the amount of exempt income.

In conclusion, the High Court affirmed the Tribunal's decision, emphasizing that the disallowance of expenditure under section 14A should not surpass the exempt income earned by the assessee. The judgment highlighted the principle that the disallowance should be limited to the amount of exempt income, as established by relevant case law and precedents.