2017 (5) TMI 1810 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - no disallowance has been made by the assessee despite earning exempt income - HELD THAT - Hon'ble Delhi High Court in case of Joint Investment Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT has held that disallowance u/s 14A cannot swallow the entire amount as it has happened in this case as per assessment order. Therefore, we are of the opinion that as the exempt income itself is Rs. 1700/- only the disallowance cannot exceed that sum. Hence, no further disallowance can be made. Therefore, the appeal of the revenue is deserves to be dismissed.

Summary

Issues:
Disallowance under section 14A of the Income Tax Act - Recomputation of disallowance under Rule 8D - Appeal by revenue against deletion of disallowance - Exempt income claimed by assessee - Application of Rule 8D for disallowance - Restriction of disallowance amount - Interpretation of High Court decision on disallowance u/s 14A.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved a dispute regarding the disallowance of Rs. 99,04,7514 made by the Assessing Officer under section 14A of the Income Tax Act, which was deleted by the ld CIT(A)-V, New Delhi. The assessee had filed its return of income for AY 2009-10, claiming Rs. 1700/- as exempt dividend income. The Assessing Officer applied Rule 8D to make the disallowance, which was contested by the assessee. The first appellate authority recomputed the disallowance under Rule 8D and restricted it to Rs. 264/- only, from the initial disallowance of Rs. 99,04,7514. The revenue challenged this decision before the Tribunal.

During the proceedings, the ld DR representing the revenue relied on the Assessing Officer's orders, while the ld AR representing the assessee relied on the ld CIT(A)'s order. The Tribunal carefully considered the contentions and the orders of the lower authorities. It noted that despite earning exempt income of Rs. 1700/-, no disallowance had been made by the assessee, leading to the application of Rule 8D for recomputation of disallowance. The first appellate authority's computation of disallowance to Rs. 264/- was found to be in order, with no identified infirmity.

However, the Tribunal referred to a decision by the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd. Vs. CIT, which held that disallowance u/s 14A cannot exceed the exempt income amount. Given that the exempt income in this case was Rs. 1700/-, the Tribunal concluded that the disallowance could not surpass that sum. Therefore, it was determined that no further disallowance could be justified. Consequently, the Tribunal dismissed the revenue's appeal, upholding the decision of the ld CIT(A) to delete the disallowance.

In the final order pronounced on 31/05/2017, the Tribunal dismissed the appeal of the revenue, affirming the deletion of the disallowance under section 14A of the Income Tax Act for AY 2009-10.