2020 (2) TMI 1703 - AT - Income Tax

Disallowance u/s 14A - assessee has suo motu disallowed amount - HELD THAT - As disallowance of expenditure in terms of Section 14A r.w. Rule 8D cannot exceed the exempt income itself. No additional disallowance is called for under sec. 14A of the Act in excess of exempt income. The disallowance is thus required to be restricted to the extent of exempt income. See CORRTECH ENERGY PVT. LTD. 2014 (3) TMI 856 - GUJARAT HIGH COURT M/S CHETTINAD LOGISTICS PVT. LTD. 2018 (7) TMI 567 - SC ORDER

Summary

Issues involved:
Disallowance made under section 14A of the Income Tax Act, 1961.

Analysis:
The appeals were filed by the assessee against the orders passed by the CIT(A)-4, Bengaluru for the assessment years 2013-14 concerning disallowance under section 14A of the Act. The AO initially disallowed Rs. 49,50,262 under section 14A, which was later revised and enhanced to Rs. 2,17,23,007 through a subsequent order under section 154 of the Act. The CIT(A) upheld the enhanced disallowance. The main issue in both appeals was the disallowance under section 14A.

During the proceedings, it was noted that the assessee had claimed exempt income of Rs. 28,000, and had suo motu disallowed Rs. 13,527 under section 14A. The contention was that the disallowance under section 14A cannot exceed the exempt income, citing the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy P. Ltd. The assessee also referred to another judgment by the Hon'ble Gujarat High Court in the case of CIT vs. Vision Finstock Ltd., which reiterated that disallowance under section 14A cannot exceed the exempt income itself. The Supreme Court's dismissal of the Revenue's SLP against the Vision Finstock Ltd. judgment was also highlighted, along with the decision in CIT vs. Chettinad Logistics (P.) Ltd. Based on these judicial precedents, it was concluded that no additional disallowance beyond the exempt income was permissible under section 14A.

Ultimately, the Tribunal partly allowed both appeals of the assessee, emphasizing that the disallowance under section 14A should be restricted to the extent of exempt income. The order was pronounced in the open court on 26-02-2020.