2014 (6) TMI 218 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D of the Act Held that - The disallowance made in the case of the assessee u/s 14A by applying Rule 8D is much more than the expenditure actually claimed by the assessee Relying upon GILLETTE GROUP INDIA PVT LTD Versus DEPUTY COMMISSIONER OF INCOME TAX 2013 (9) TMI 225 - ITAT DELHI - the disallowance u/s 14A cannot exceed the expenditure actually claimed by the assessee thus, the AO is directed to restrict the disallowance u/s 14A only to the extent of expenditure actually claimed by the assessee Decided partly in favour of Assessee.

Summary

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

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961

The appeal was against the disallowance of Rs.11,31,374 made by the Assessing Officer (AO) and confirmed by the ld. CIT(A) under section 14A of the Income Tax Act, 1961. The assessee, a company engaged in investment and trading, had filed its return declaring a total loss of Rs.4,90,57,128, claiming exempt dividend income of Rs.6,66,274 without offering any disallowance for related expenditure as required by section 14A. The AO calculated the expenditure at Rs.11,31,374 using Rule 8D and disallowed it. The ld. CIT(A) upheld the disallowance, leading to the appeal before the Tribunal.

Analysis:

The assessee contended that the disallowance was excessive as it exceeded the actual expenditure claimed. The counsel highlighted specific expenditures from the profit and loss account to support this argument. The counsel referenced a decision by the "D" Bench of the Delhi Tribunal in the case of M/s Gillette Group India v. ACIT, emphasizing that the disallowance under section 14A should be limited to the expenditure actually claimed by the assessee. The ld. DR supported the revenue's stance based on the lower authorities' orders.

The Tribunal found merit in the assessee's argument, noting that the disallowance under section 14A, as per Rule 8D, was higher than the actual claimed expenditure. Citing the case of M/s Gillette Group India, where it was held that the disallowance under section 14A cannot surpass the expenditure claimed by the assessee, the Tribunal directed the AO to restrict the disallowance under section 14A to the amount actually claimed by the assessee. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the Tribunal's judgment addressed the issue of disallowance under section 14A of the Income Tax Act, 1961, emphasizing that the disallowance should align with the actual expenditure claimed by the assessee, as established in relevant case law.