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2019 (3) TMI 1583 - AT - Income TaxAddition u/s 14A r.w.r. 8D - HELD THAT - In the case of Cheminvest Ltd. vs. Commissioner of Income Tax 2015 (9) TMI 238 - DELHI HIGH COURT has held that section 14A will not apply if no exempt income is received or receivable during the previous year. In the present case the assessee has earned the exempt income during the previous year against which the AO made disallowance u/s 14A read with rule 8D. In the first appeal the CIT(A)has restricted the disallowance to the amount of exempt income. We are of the considered view that the order passed by the CIT (A) is in accordance with the principles of law laid down by the Hon ble High Court in the case of Joint Investment Pvt. Ltd. vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT . Hence we do not find any reason to interfere with the findings of the Ld. CIT (A). We accordingly uphold the findings of the CIT (A) and dismiss the sole ground of appeal of the revenue.
Issues:
- Appeal and cross objection against order dated 30.10.2017 passed by CIT (A)-50, Mumbai for assessment year 2011-12. - Disallowance under section 14A read with Rule 8D of the Income Tax Act, 1961. - Challenge to the impugned order by revenue. - Restriction of disallowance to exempt income by CIT (A). - Applicability of Section 14A and Rule 8D. Analysis: 1. The appeal and cross objection were filed against the order passed by the CIT (A)-50, Mumbai for the assessment year 2011-12. The AO had determined the total income of the assessee after making an addition under section 14A read with Rule 8D of the Income Tax Act, 1961. The CIT (A) partly allowed the appeal by restricting the addition to the exempt income earned during the relevant assessment year. 2. The revenue challenged the CIT (A)'s order, contending that the disallowance should not have been restricted to the exempt income. The revenue argued that Rule 8D prescribes the method for determining expenditure related to income not forming part of the total income when the AO is not satisfied with the assessee's claim. The counsel for the assessee, however, relied on judicial pronouncements to support the CIT (A)'s decision. 3. The key issue revolved around whether the disallowance under section 14A should be limited to the exempt income earned by the assessee during the relevant year. The CIT (A) based the restriction on decisions of the Hon'ble Delhi High Court, emphasizing that the disallowance could not exceed the exempt income earned. 4. The Hon'ble Delhi High Court's rulings in cases like Cheminvest Ltd. and Joint Investment P. Ltd. were cited to support the restriction of disallowance to the exempt income. The Court held that if no exempt income is received, section 14A would not apply, and the disallowance under Rule 8D cannot exceed the exempt income. 5. The Tribunal upheld the CIT (A)'s decision, stating that since the assessee earned only a specific amount of exempt income, the disallowance was rightly restricted to that amount. The Tribunal found no reason to interfere with the CIT (A)'s findings, aligning with the principles laid down by the Hon'ble High Court. 6. The cross objection filed by the assessee raised concerns about the invocation of Section 14A and Rule 8D without the required satisfaction and the applicability of these provisions when no expenditure was incurred in relation to exempt income. However, the assessee chose not to press the cross objection, leading to its dismissal. 7. Ultimately, the Tribunal dismissed the appeal filed by the revenue and the cross objection filed by the assessee, upholding the CIT (A)'s order. The decision was pronounced on 8th March 2019, concluding the legal proceedings in this matter.
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