2018 (2) TMI 2070 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - disallowance of interest expenditure - HELD THAT - As in the Asstt.Year 2012-13 2017 (12) TMI 1611 - ITAT AHMEDABAD the Tribunal has restricted the disallowance of interest expenditure equivalent to the dividend income or exempt income by following the decision of the Hon ble Delhi High Court in the case of CIT Vs. Taikisha Engg. (I) Ltd. 2014 (12) TMI 482 - DELHI HIGH COURT - Tribunal has placed reliance upon the decision of the ITAT Mumbai Bench in the case of Daga Global Chemicals Ltd. 2015 (1) TMI 1204 - ITAT MUMBAI Neither the AO has mentioned exact amount of dividend income or exempt income earned by the assessee in the assessment order nor ld.CIT(A) - It is not discernible from the record whether these details were given to the AO or not and whether the AO has verified this or not. Considering this aspect we deem it appropriate to set aside the issue to the file of AO with direction that the ld.AO shall verify quantum of dividend income/exempt income and restrict the disallowance out of interest expenditure equivalent to the exempt income/dividend income. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues involved:
Disallowance of interest expenditure under section 14A of the Income Tax Act, r.w. Rule 8D of the Income Tax Rules, 1962.

Analysis:

Issue 1: Disallowance of interest expenditure
The appeal was against the order of the ld.CIT(A) confirming the disallowance of &8377; 2,23,236 made by the AO under section 14A of the Income Tax Act, r.w. Rule 8D of the Income Tax Rules, 1962. The AO disallowed the interest expenditure claimed by the assessee due to exempt income earned. The Tribunal noted that in a previous year, the disallowance was restricted to the extent of the exempt income earned by the assessee, following relevant judicial precedents. The Tribunal referred to decisions of the Hon'ble Delhi High Court and the ITAT, Mumbai Bench to support this position. However, it was observed that neither the AO nor the ld.CIT(A) had specified the exact amount of dividend income or exempt income earned by the assessee. The Tribunal directed the AO to verify the quantum of dividend income/exempt income and restrict the disallowance of interest expenditure equivalent to the exempt income/dividend income. The appeal of the assessee was allowed for statistical purposes, setting aside the issue for further verification by the AO.

In conclusion, the Tribunal's judgment focused on the proper application of the provisions relating to the disallowance of interest expenditure under section 14A of the Income Tax Act, emphasizing the need for a direct correlation between the disallowance and the amount of exempt income earned by the assessee. The decision highlighted the importance of following judicial precedents and ensuring accurate verification of relevant income figures to determine the appropriate disallowance amount.