2019 (7) TMI 1693 - AT - Income Tax

Disallowance u/s 14A r/w rule 8D - AO noticed that during the year the assessee has earned exempt income by way of dividend on mutual fund and shares - HELD THAT - Disallowance made by the Assessing Officer is far in excess of the total expenditure claimed by the assessee. Therefore under no circumstances the disallowance made by the AO could have been sustained. Therefore following the decisions of the Tribunal and the Hon ble Jurisdictional High Court 2014 (1) TMI 1183 - ITAT MUMBAI in the preceding assessment years we hold that the disallowance under section 14A r/w rule 8D should be restricted to the amount already disallowed by the assessee under section 14A. - Decided in favour of assessee.

Summary

Issues:
Dispute regarding disallowance under section 14A r/w rule 8D for three different assessees.

Analysis:
The judgment involves appeals by three different assessees challenging three separate orders passed by the Commissioner (Appeals) for the assessment year 2013-14. The common issue in all appeals pertains to the disallowance under section 14A r/w rule 8D. The Tribunal decided to hear and dispose of these appeals together due to the common issue arising from identical facts and circumstances. The facts discussed in the judgment primarily focus on one of the assessees, DSP Adico Holdings Pvt. Ltd.

During the assessment proceedings, it was noted that the assessee earned exempt income through dividends on mutual funds and shares, amounting to ?12,52,50,710. The Assessing Officer proposed a disallowance under section 14A and rule 8D, calling upon the assessee to justify why such disallowance should not be made. The assessee contended that it had already disallowed direct expenses related to exempt income and a proportionate amount of balance expenditure. However, the Assessing Officer computed a disallowance under rule 8D(2) at ?3,57,95,064, leading to an addition of ?3,55,92,376 after adjusting the disallowance already made by the assessee.

The Commissioner (Appeals) granted partial relief to the assessee by restricting the disallowance to ?5,34,326. The assessee, represented by counsel, argued that the total expenditure debited to the Profit & Loss account was ?6,71,000, out of which ?2,02,688 was voluntarily disallowed under section 14A. The counsel contended that the disallowance should be limited to the amount voluntarily disallowed, citing past Tribunal decisions and High Court approvals supporting this approach.

After considering the submissions, the Tribunal observed that the total expenditure claimed by the assessee for all income sources during the year was ?6.71 lakh, with a portion of ?2,02,688 already disallowed under section 14A. The Tribunal noted that the assessee had consistently followed a proportionate method of disallowance between taxable and exempt income in previous years. Relying on previous Tribunal decisions and High Court approvals, the Tribunal held that the disallowance should be restricted to the amount voluntarily disallowed by the assessee. Consequently, the Tribunal allowed the assessee's grounds and dismissed those of the Revenue.

Given the identical nature of facts, the Tribunal applied the same decision to the appeals of the other two assessees considered in the order. As a result, the assessee's appeals were allowed, and the Revenue's appeals were dismissed. The order was pronounced in open court on 19.07.2019.