2019 (7) TMI 1531 - AT - Income Tax

Disallowance under sec.14A r.w. rule 8D - addition applying rule 8D(2)(ii) and 8D(2)(iii) - HELD THAT - The amount of disallowance cannot exceed exempt income is settled. Accordingly, we hold that the disallowance cannot exceed the amount of exempt income. On the second limb of argument that only investments which yielded exempt income should alone be considered, in the light of the decision of the Special Bench of Tribunal in the case of ACIT vs. Vireet investment Pvt. Ltd. anr 2017 (6) TMI 1124 - ITAT DELHI the contention of the assessee is accepted. We restore the disputed issue to the file of the AO for limited purpose to restrict the disallowance u/s 14A to the extent of exempt income and allow the grounds of appeal are allowed for statistical purposes.

Summary

Issues Involved:
- Disallowance under section 14A of the Income-tax Act, 1961 with respect to the assessment years 2014-15 and 2015-16.

Analysis:
1. Assessment Year 2014-15:
- The assessee appealed against the order of the CIT(A) regarding disallowance under section 14A r.w. rule 8D. The AO had made disallowance of a certain amount under section 14A, which the assessee contested, stating that the disallowance should not exceed the exempt income earned during the year. The CIT(A) partially allowed the appeal, restricting the disallowance to the exempt income. The Tribunal, considering the arguments, referred to relevant judicial decisions emphasizing that the disallowance cannot exceed the exempt income. The Tribunal upheld the assessee's appeal and remitted the issue back to the AO for recalculating the disallowance limited to the exempt income.

2. Assessment Year 2015-16:
- The facts and grounds of appeal for this assessment year were similar to 2014-15. The Tribunal applied the same reasoning and decision as in the earlier assessment year. The appeal for 2015-16 was also allowed for statistical purposes, and the issue was remitted back to the AO to calculate the disallowance under section 14A r.w. rule 8D limited to the exempt income.

3. Revenue Appeal:
- The Revenue filed an appeal challenging the restriction of disallowance under section 14A to the exempt income. The Tribunal, having allowed the assessee's appeal and remitted the matter back to the AO, also remitted this issue to the AO for further consideration. The Revenue's appeal was allowed for statistical purposes.

In conclusion, the Tribunal's judgments for both assessment years favored the assessee, emphasizing that the disallowance under section 14A cannot exceed the exempt income earned during the year. The matters were remitted back to the AO for recalculating the disallowance in line with the exempt income. The Revenue's appeal was also remitted back to the AO for further consideration.