2019 (3) TMI 530 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - claim exceeding exempt income of the relevant year - HELD THAT - It is an undisputed fact that assessee has incurred expenditure on account of interest etc., for making investment in shares of various companies to the extent of ₹ 2.37 crores and has not earned any any exempt income. We find that in the case of PCIT Vs. State Bank of Patiala 2018 (4) TMI 23 - PUNJAB & HARYANA HIGH COURT has held that the amount of disallowance u/s 14A has to be restricted to the amount of exempt income only and not at a higher figure. We find that against the aforesaid order of Punjab and Haryana High Court, Revenue filed S.L.P. before the Hon ble Apex Court and the S.L.P. was dismissed by the Hon ble Apex Court. In the case of PCIT Vs Caraf Builders & Construction (P) Ltd. 2018 (12) TMI 410 - DELHI HIGH COURT after considering the decisions of Maxopp Investment Ltd. Vs. CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA , Cheminvest Vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT and other decisions has held that disallowance u/s 14A cannot exceed exempt income of the relevant year. In the present case, since assessee has not earned any exempt income from dividends, no disallowance is called for in the present case. - Decided in favour of assessee.

Summary

Issues:
- Disallowance under section 14A Rule 8D of the Act

Analysis:
1. The appeal was filed by the assessee against the order of the Commissioner of Income Tax - (Appeals) - 2, Nashik for the assessment year 2013-14. The assessee, an HUF engaged in cotton ginning pressing and trading, had electronically filed its return of income declaring total income. The assessment was framed under section 143(3) of the Act, resulting in a determined total income. The assessee raised several grounds in the appeal, primarily challenging the disallowance under section 14A Rule 8D of the Act.

2. The Assessing Officer (AO) noticed investments made by the assessee in shares of various companies and asked for an explanation regarding the disallowance under section 14A Rule 8D of the Income Tax Rules. The assessee contended that no exempt income was earned from the investments, hence no disallowance should be made. However, the AO disagreed and relied on a CBDT Circular to make the disallowance. The AO disallowed a specific amount, which was later upheld by the Commissioner of Income Tax (Appeals).

3. The issue before the Appellate Tribunal was whether the disallowance under section 14A Rule 8D of the Act was justified when no exempt income was earned by the assessee. The assessee argued that since no exempt income was received, no disallowance should be made, citing relevant case laws. The Departmental Representative supported the lower authorities' decision.

4. The Tribunal considered the submissions and relevant case laws, including a decision by the Punjab and Haryana High Court and the Delhi High Court. It was noted that the disallowance under section 14A cannot exceed the exempt income of the relevant year. Since the assessee did not earn any exempt income from dividends, the Tribunal ruled that no disallowance was warranted in this case. The Tribunal allowed the grounds raised by the assessee and allowed the appeal.

5. In conclusion, the Appellate Tribunal held that the disallowance under section 14A Rule 8D of the Act cannot exceed the exempt income earned by the assessee. Since the assessee did not earn any exempt income from dividends, no disallowance was justified. Therefore, the appeal of the assessee was allowed.