2021 (7) TMI 1215 - AT - Income Tax

Disallowance u/s 14A - assessee has suo-moto disallowed an amount - HELD THAT - After considering the submissions of the assessee, we are in agreement with the assessee based on the decisions of the Hon ble High Court s that the disallowance under section 14A is restricted to exempt income earned by the assessee. As relying on Chalet Hotels Ltd 2021 (1) TMI 1134 - ITAT MUMBAI we are inclined to direct the assessing officer to restrict the disallowance under section 14A to the extent of exempt income earned by the assessee. Accordingly ground raised by the assessee is allowed.

Summary

Issues:
Disallowance under section 14A of the Income Tax Act - Whether the disallowance should be restricted to the amount of exempt income earned by the assessee.

The Appellate Tribunal ITAT Mumbai heard an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16. The assessee had declared a loss of ?28,39,12,436 in the return of income. The Assessing Officer (AO) observed that the assessee had made investments in shares and incurred interest expenditure, along with a suo-moto disallowance under section 14A of the Act. The AO invoked rule 8D(2) of the IT Rules to disallow an amount of ?28,47,860. The Commissioner of Income Tax (Appeals) agreed with the assessee that the disallowance under section 14A should be restricted to the amount of exempt income earned, which was ?5,26,516. However, since the assessee had already disallowed ?13,85,320, the disallowance was restricted to that amount.

The assessee appealed to the ITAT Mumbai, arguing that the disallowance under section 14A should be restricted to the amount of exempt income earned during the year. The assessee relied on previous decisions to support this argument. The ITAT noted that the assessee had disallowed an amount of ?13,85,320, while the exempt income earned was ?5,26,516. Citing a previous decision, the ITAT held that the disallowance under section 14A should be restricted to the exempt income earned by the assessee. Therefore, the ITAT directed the assessing officer to restrict the disallowance under section 14A to the extent of the exempt income earned by the assessee, allowing the appeal filed by the assessee.

In conclusion, the ITAT Mumbai ruled in favor of the assessee, directing the assessing officer to restrict the disallowance under section 14A to the extent of exempt income earned by the assessee. The appeal filed by the assessee was allowed, and the order was pronounced on 22.04.2021.