2017 (11) TMI 1954 - AT - Income Tax

Disallowance u/s.14A - expenditure incurred in connection with exempt dividend income - HELD THAT - Hon ble Jurisdictional High Court in the case of Regindton (India) Ltd 2017 (1) TMI 318 - MADRAS HIGH COURT has held that expenditure incurred in connection with exempt dividend income would relate only to the previous year when the income was earned. In our opinion there is no room for doubt that disallowance u/s. 14A of the Act cannot exceed income claimed as exempt by an assessee. We therefore restrict the disallowance u/s.14A - Appeal of the assessee is treated as partly allowed.

Summary

Issues: Disallowance u/s.14A of the Income Tax Act, 1961 r.w.r 8D(2)(ii) of the Income Tax Rules, 1962.

The judgment dealt with the issue of disallowance under section 14A of the Income Tax Act, 1961, read with rule 8D(2)(ii) of the Income Tax Rules, 1962. The appellant contested the disallowance made by the Assessing Officer, arguing that the disallowance should be limited to the exempt income claimed, which was &8377; 1,41,447. The appellant relied on judgments by the Delhi High Court and the Jurisdictional High Court to support this argument. On the other hand, the Departmental Representative contended that the Assessing Officer could make disallowance irrespective of the quantum of exempt income claimed, citing a circular from the Central Board of Direct Taxes. The Tribunal considered the contentions and orders of the authorities below, noting that the exempt income claimed was &8377; 1,41,447, while the disallowance made was &8377; 3,36,249.

The Tribunal referred to the judgment of the Delhi High Court in the case of Joint Investment P. Ltd, emphasizing that the disallowance under section 14A cannot exceed the income claimed as exempt. The High Court highlighted the need for scrutiny of accounts and rejected the notion that the entire tax-exempt income should be disallowed. Additionally, the Tribunal cited the Jurisdictional High Court's decision in the case of Regindton (India) Ltd, which clarified that expenditure related to exempt dividend income should only pertain to the year in which the income was earned. Based on these precedents, the Tribunal concluded that the disallowance under section 14A cannot surpass the income claimed as exempt, restricting it to &8377; 1,41,447.

In conclusion, the Tribunal partially allowed the appeal of the assessee, limiting the disallowance under section 14A of the Act to the amount of exempt income claimed. The order was pronounced on November 27, 2017, in Chennai.