2018 (9) TMI 710 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - Held that - It has been held in various decisions that disallowance u/s 14A r.w. Rule 8D cannot exceed the actual dividend income received which has been claimed as exempt. Therefore, hold that the disallowance u/s 14A in the instant case cannot exceed ₹ 4280/- which is the actual exempt income received by the assessee during the year. We, therefore, set-aside the order of the ld. CIT(A) and direct the Assessing Officer to restrict the disallowance u/s 14A to the extent of actual exempt income received by the assessee which in the instant case is ₹ 4280/-. The ground raised by the assessee is accordingly partly allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D.
2. Maintainability of the Revenue's appeal based on tax effect.

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D
The case involved cross-appeals concerning the disallowance of &8377; 21,63,995 under section 14A of the Income Tax Act, 1961 read with Rule 8D. The Assessing Officer disallowed the amount as expenses incurred in relation to income not forming part of the total income. The assessee contended that no fresh investments were made during the relevant year and that the investments were strategic for business promotion, not for trading. The assessee received only &8377; 4,280 as dividend income during the year. The Tribunal considered arguments from both sides and various decisions. It held that the disallowance under section 14A cannot exceed the actual exempt income received, which in this case was &8377; 4,280. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to restrict the disallowance to the actual exempt income received.

Issue 2: Maintainability of the Revenue's appeal based on tax effect
The Revenue's appeal was dismissed as the tax effect involved in the grounds raised was below &8377; 20 lakhs, rendering the appeal not maintainable per the CBDT Circular No.03/2018. The Circular, applicable to pending appeals, allowed the Revenue to file a Miscellaneous Application for revival if the case fell under specified clauses. Consequently, the Tribunal dismissed the Revenue's appeal based on the tax effect criteria.

In conclusion, the Tribunal partly allowed the assessee's appeal by restricting the disallowance under section 14A to the actual exempt income received and dismissed the Revenue's appeal due to the tax effect falling below the threshold specified in the CBDT Circular.