2017 (12) TMI 1794 - AT - Income Tax

Disallowance u/s.14A to the amount of dividend income claimed by the assessee as exempt - HELD THAT - Commissioner of Income Tax (Appeals) was justified in restricting the disallowance made u/s.14A of the Act to the exempt income claimed by the assessee. We do not find any reason to interfere with the order of the ld.CIT(A) for both the years. See JOINT INVESTMENTS PVT LTD VERSUS COMMISSIONER OF INCOME TAX 2015 (3) TMI 155 - DELHI HIGH COURT .

Summary

Issues:
1. Interpretation of Sec.14A of the Income Tax Act, 1961.
2. Disallowance of expenses related to exempt income.
3. Application of Circular No.5/2014, dated 11.02.2014 of CBDT.
4. Judicial precedent set by the Hon'ble Delhi High Court.
5. Compliance with the provisions of Sec.14A and Rule 8D.

Analysis:

1. The primary issue in this case revolves around the interpretation of Sec.14A of the Income Tax Act, 1961. The Revenue raised a grievance against the order of the ld. Commissioner of Income Tax (Appeals) that restricted the disallowance made under Sec.14A to the amount of dividend income claimed by the assessee as exempt.

2. The Assessing Officer had initially made a disallowance of expenses amounting to significant sums for the assessment years in question, based on the application of Sec.14A r.w.r. 8D. However, the Commissioner of Income Tax (Appeals) limited the disallowance to the exempt income claimed by the assessee, citing a judgment of the Hon'ble Delhi High Court in a similar case.

3. The Revenue contended that Circular No.5/2014 of CBDT allowed for disallowance under Sec.14A irrespective of the quantum of exempt income. However, the Authorized Representative supported the Commissioner's order, emphasizing compliance with the judicial precedent set by the Hon'ble Delhi High Court.

4. The Tribunal analyzed the contentions of both parties and reviewed the orders of the authorities below. It noted that the issue was already settled in favor of the assessee by the judgment of the Hon'ble Delhi High Court in the case of Joint Investments P. Ltd. The Tribunal highlighted specific paragraphs from the judgment to support its decision.

5. The Tribunal further referred to a decision of the Hon'ble Delhi High Court in another case, emphasizing the necessity to examine the computation or disallowance of expenses with reference to the accounts. It was observed that the Assessing Officer failed to justify the rejection of the assessee's claim for disallowance, leading to an incorrect computation of disallowance.

6. Ultimately, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to restrict the disallowance under Sec.14A to the exempt income claimed by the assessee. It concluded that the provisions of Sec.14A read with Rule 8D cannot be applied in the absence of exempt income, affirming the order of the Commissioner for both assessment years.

In conclusion, the appeals of the Revenue were dismissed, and the order was pronounced by the Tribunal on December 21, 2017, in Chennai.