2017 (10) TMI 1571 - AT - Income Tax

Addition u/s 14A - Assessee challenging addition u/s 14A on the ground that the AO should not resort to disallowance u/s 14A without giving a finding as to correctness or otherwise of the claim of the assessee that no expenditure was incurred to earn exempt income - CIT(A) restricting the disallowance u/s 14A to the extent of exempt income earned - HELD THAT - Now law is settled that disallowance u/s 14A cannot exceed the exempt income. Since the order of the CIT(A) is in consonance with settled proposition of law we do not find any reason to interfere with the order of the CIT(A).

Summary

Issues:
- Disallowance under section 14A of the Income Tax Act, 1961 exceeding exempt income earned.

Analysis:
1. Issue of Disallowance under Section 14A:
- The appeal was filed by the revenue against the order of the Commissioner of Income-tax (Appeals) concerning the assessment year 2009-10. The Assessing Officer disallowed a sum of Rs. 51,31,970 on the grounds that borrowed funds were not utilized for business purposes. The disallowance was accepted by the assessee.

2. Contention and Decision of CIT(A):
- The assessee challenged the addition under section 14A, arguing that the Assessing Officer should not disallow under this section without verifying the claim that no expenditure was incurred to earn exempt income. The assessee further contended that the disallowance should not exceed the exempt income earned, which was Rs. 3,380 for the current year. The CIT(A) upheld the contention of the assessee and restricted the disallowance under section 14A to the extent of the exempt income earned.

3. Appellate Tribunal's Decision:
- The revenue appealed against the CIT(A)'s order limiting the disallowance under section 14A to the amount of exempt income earned. The Appellate Tribunal noted that as per settled law, the disallowance under section 14A cannot exceed the exempt income earned. Since the CIT(A)'s order was in line with this legal principle, the Appellate Tribunal found no reason to interfere with it.

4. Final Decision:
- Consequently, the appeal filed by the revenue was dismissed by the Appellate Tribunal. The order was pronounced in open court on 27th October 2017.

This detailed analysis covers the issues involved in the legal judgment regarding the disallowance under section 14A of the Income Tax Act, 1961 and the subsequent decisions made by the CIT(A) and the Appellate Tribunal.