2017 (2) TMI 1508 - AT - Income Tax

Disallowance u/s 14A r.w.s. 8D - HELD THAT - Disallowance made by the AO is more than the exempted income claimed by the assessee. On a similar issue the ITAT Delhi Bench D in the aforesaid referred to case of M/s Global Capital Ltd., New Delhi 2015 (11) TMI 1667 - ITAT DELHI by following the earlier decision in the case of Indus Valley Investment Finance (P) Ltd. 2015 (4) TMI 1171 - ITAT DELHI . As relying on GLOBAL CAPITAL LTD. VERSUS ACIT, CIRCLE-12 (1) , NEW DELHI. 2015 (11) TMI 1667 - ITAT DELHI direct the AO to make the disallowance to the extent of the income claimed by the assessee as exempt - Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
- Disallowance under section 14A of the Income Tax Act
- Applicability of Rule 8D of the Income Tax Rules
- Limitation on disallowance amount not exceeding exempt income

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act
The appeal was against the order of the ld. CIT-XI, New Delhi, regarding the disallowance sustained by the ld. CIT(A) amounting to ?1,82,95,666 made by the AO under section 14A of the Income Tax Act. The assessee contended that the disallowance should not exceed the exempted income, citing relevant case laws. The ITAT considered the submissions and observed that the disallowance made by the AO was more than the exempted income claimed by the assessee. Referring to a previous decision, the ITAT directed that the disallowance should be restricted to the income claimed as exempt by the assessee.

Issue 2: Applicability of Rule 8D of the Income Tax Rules
The assessee argued that Rule 8D should not be applicable. However, the ld. CIT(A) held that the disallowance under Rule 8D was correctly worked out in accordance with the provisions of the Income Tax Rules, 1962. The ITAT, after considering the arguments of both parties and the material on record, directed the AO to restrict the disallowance to the extent of the income claimed as exempt by the assessee, in line with the previous decision.

Issue 3: Limitation on disallowance amount not exceeding exempt income
The ITAT referred to a specific case where it was held that the disallowance under section 14A should not exceed the exempt income. Citing relevant judgments, the ITAT directed the AO to restrict the disallowance to the amount of income claimed as exempt by the assessee. Consequently, the appeal filed by the assessee was partly allowed, and the disallowance was limited to the income claimed as exempt.

In conclusion, the ITAT, based on previous decisions and relevant case laws, emphasized that the disallowance under section 14A should not exceed the exempt income. The judgment provided clarity on the calculation and restriction of disallowance, ensuring it aligns with the income claimed as exempt by the assessee.