2018 (11) TMI 1854 - AT - Income Tax

Disallowance of expenditure u/s 14A - HELD THAT - The grievance of the assessee is that disallowance u/s 14A cannot exceed the exempt income. We find that in the case of Joint Investments (P.) Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT held that the window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to exempt income. Therefore, we are of the view that disallowance under section 14A cannot exceed the exempt income, and, hence, we direct the assessing officer to restrict disallowance under section 14A to the extent of exempt income earned by the assessee. Accordingly are allowed.

Summary

Issues: Disallowance under section 14A of the Income Tax Act, charging of interest u/s 234B and 234C.

Disallowance under section 14A:
The case involved an appeal by the assessee against the order of the CIT(A) for the assessment year 2013-14. The assessee, engaged in the business of Poultry Equipments, had claimed an amount towards interest, advances from customers, and investments in companies. The Assessing Officer (AO) computed a disallowance under section 14A r.w.r 8D. The CIT(A) confirmed the disallowance, leading to the assessee's appeal before the ITAT Hyderabad. The ITAT held that the disallowance under section 14A cannot exceed the exempt income earned by the assessee. Citing a case from the Hon'ble Delhi High Court, the ITAT clarified that the disallowance is limited to the extent of expenditure incurred by the assessee in relation to exempt income. Therefore, the ITAT directed the AO to restrict the disallowance under section 14A to the extent of the exempt income earned by the assessee. Consequently, grounds 2 to 4 of the appeal were allowed.

Charging of interest u/s 234B and 234C:
Regarding the issue of charging interest under sections 234B and 234C of the Income Tax Act, the ITAT noted that charging interest under these sections is mandatory in nature. Therefore, the ITAT directed the AO to proceed with charging interest under sections 234B and 234C as per the provisions of the Income Tax Act. Ground 5 of the appeal, related to this issue, was addressed and decided in favor of the revenue authorities.

Conclusion:
The ITAT Hyderabad allowed the appeal of the assessee, pronouncing the decision on 9th November 2018. The judgment clarified the limitations on disallowance under section 14A, emphasizing that it should not exceed the exempt income earned by the assessee. Additionally, the mandatory nature of charging interest under sections 234B and 234C was reaffirmed. The detailed analysis provided a comprehensive understanding of the issues involved and the ITAT's decision on each matter, ensuring clarity on the legal aspects of the judgment.