2018 (3) TMI 1902 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Addition to be restricted to the extent of exempt income - HELD THAT - We find that the Hon'ble Delhi High Court also in the case Cheminvest Ltd. vs. CITI 2015 (9) TMI 238 - DELHI HIGH COURT has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A. Similar view has been taken in CIT vs. Holcim India P. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT . The net effect of these decisions is that the disallowance u/s 14A gets restricted to the extent of exempt income, even if the provisions of the section are attracted. In view of the above precedents, which are squarely applicable to the facts of the instant case, we limit the disallowance to the extent of exempt income. Appeal of assessee is partly allowed.

Summary

Issues Involved:
Reduction/sustenance of disallowance u/s 14A of the Income-tax Act, 1961.

Analysis:
The Appellate Tribunal ITAT, Delhi heard two cross-appeals concerning the reduction/sustenance of disallowance u/s 14A of the Income-tax Act, 1961 for the assessment year 2010-11. The assessee declared investments of ?53.51 crore with exempt dividend income of ?4,30,621. The Assessing Officer computed disallowance under Rule 8D at ?3,80,01,842, which the CIT(A) reduced to ?63,48,133. The main issue raised by both parties was the quantum of disallowance under section 14A. The Tribunal considered relevant precedents, including the decisions of the jurisdictional High Court and the Delhi High Court, which established that the disallowance under section 14A cannot exceed the exempt income. Therefore, the Tribunal limited the disallowance to the extent of the exempt income of ?4,30,621. Consequently, the appeal of the Revenue was dismissed, and that of the assessee was partly allowed.

In conclusion, the Tribunal's judgment clarified the principle that the disallowance under section 14A of the Income-tax Act, 1961 should not exceed the amount of exempt income. This decision was based on established precedents from the jurisdictional High Court and the Delhi High Court. The judgment provided a clear guideline for determining the quantum of disallowance under section 14A, ensuring a fair and consistent application of the law in such cases.