9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (1) TMI 922 - HC - Income TaxDisallowance u/s 14A - larger disallowance proposed by the Assessee himself in the comput ation of disallowance under Rule 8D - HELD THAT - As relying on M/S. MARG LIMITED VERSUS COMMISSIONER OF INCOME TAX CHENNAI 2020 (10) TMI 102 - MADRAS HIGH COURT we dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income-tax Rules, 1962.
Issues Involved:
1. Whether the Tribunal was right in restricting the disallowance under Section 14A of the Income Tax Act to the extent of exempt income earned during the relevant previous year. 2. Whether the Tribunal was correct in deleting the addition made to the book profits computed under Section 115JB being expenditure incurred to earn exempt income. Issue-wise Detailed Analysis: 1. Restriction of Disallowance under Section 14A: The Tribunal restricted the disallowance under Section 14A to the extent of exempt income earned during the relevant previous year. The Revenue questioned this restriction, arguing that Section 14A does not permit such a limitation. The High Court referred to multiple judgments, including the case of Marg Ltd. vs Commissioner of Income Tax ([2020] 120 taxmann.com 84 (Madras)), which supported the Tribunal's decision. The court emphasized that the Assessing Officer (AO) must record satisfaction that the expenditure incurred by the assessee to earn exempt income is not acceptable before applying Rule 8D. The court cited the Karnataka High Court judgment in Pragathi Krishna Gramin Bank v. Jt CIT [2018] 95 taxmann.com 41, which stated that disallowance under Section 14A beyond actual exempted income is absurd and hypothetical. The court highlighted that the disallowance should have a rational nexus with the actual expenditure incurred to earn the exempt income and cannot exceed the exempt income itself. The court reiterated that the AO must record satisfaction before applying Rule 8D, and the disallowance cannot be based on hypothetical calculations. 2. Deletion of Addition to Book Profits under Section 115JB: The Tribunal deleted the addition made to the book profits computed under Section 115JB, which included expenditure incurred to earn exempt income. The Revenue argued that clause (f) of Explanation 1 to Section 115JB specifically provides for such an addition. The High Court referred to the Supreme Court's decision in Maxopp Investment Ltd., which clarified that the AO needs to record satisfaction before applying the theory of apportionment under Section 14A. The court also referred to the Madras High Court's judgment in CIT v. Chettinad Logistics (P.) Ltd. [2017] 80 taxmann.com 221, which held that disallowance under Section 14A cannot exceed the exempt income itself. The court emphasized that the AO must record satisfaction that the expenditure incurred by the assessee to earn exempt income is not acceptable before applying Rule 8D. The court concluded that the Tribunal was correct in deleting the addition to the book profits under Section 115JB, as the disallowance under Section 14A cannot exceed the exempt income. Conclusion: The High Court dismissed the appeal filed by the Revenue, answering the substantial questions of law against the Revenue. The court held that the disallowance under Section 14A cannot exceed the exempt income earned during the relevant previous year, and the AO must record satisfaction before applying Rule 8D. The court also upheld the Tribunal's decision to delete the addition to the book profits under Section 115JB, as the disallowance under Section 14A cannot exceed the exempt income. The appeal was disposed of with no costs.
|
