2018 (6) TMI 283 - AT - Income Tax

Addition u/s 14A r.w.r 8D - Held that - As decided in CHUDGAR RANCHODLAL JETHALAL TRADE PVT. LTD. VERSUS THE DCIT 2015 (4) TMI 437 - ITAT AHMEDABAD the provisions of Rule 8D are applicable for the year under consideration and in the light of the decision of Joint Investments Pvt Ltd Versus CIT 2015 (3) TMI 155 - DELHI HIGH COURT and in view of the fact that the disallowance worked out by A.O u/s. 14A is more than the exempt income and disallowance u/s 14A r.w.r. 8D cannot be made in excess of exempt income - the disallowance is restricted to the dividend income earned by the appellant - Decided in favour of assessee

Summary

Issues:
1. Disallowance under Section 14A r.w.r 8D of the Income Tax Rules.

Analysis:
The Appellate Tribunal ITAT Ahmedabad heard an appeal filed by the Revenue against the Commissioner of Income Tax(Appeals) order. The Revenue challenged the deletion of an addition of ?92,52,234 made under Section 14A r.w.r. 8D of the Income Tax Act, 1961. The Revenue contended that the disallowance should not be limited to the amount of dividend income, as claimed by the assessee. The assessee, a limited company engaged in various business activities, had earned dividend income of ?5,28,843 during the relevant assessment year, which was claimed as exempt income under Section 10(34) of the Act. The assessee had disallowed the entire dividend income under Section 14A in its computation of income. The Assessing Officer (AO) invoked Rule 8D and disallowed an additional amount of ?92,52,234, which was added to the total income of the assessee.

The Commissioner of Income Tax(Appeals) deleted the addition made by the AO, citing various decisions and emphasizing that the disallowance under Section 14A r.w.r. 8D cannot exceed the exempt income earned. The CIT(A) referred to previous cases and held that the disallowance should be restricted to the exempt income, especially in the absence of a clear nexus between funds and investments. The CIT(A) directed the AO to delete the addition of ?92,52,234. The Revenue, being dissatisfied, appealed to the ITAT Ahmedabad.

During the ITAT hearing, both the Departmental Representative (DR) and the Authorized Representative (AR) relied on the lower authorities' orders. The ITAT noted that a similar issue had been decided in favor of the assessee in a previous case. The ITAT referred to the decision in the case of Chudgar Ranchodlal Jethalal and held that the disallowance should be based on the exempt income earned. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s order to delete the addition of ?92,52,234. The ITAT decision was based on the principle that the disallowance under Section 14A r.w.r. 8D cannot exceed the exempt income, as established in previous judgments.

In conclusion, the ITAT upheld the CIT(A)'s order, emphasizing that the disallowance under Section 14A r.w.r. 8D should be restricted to the exempt income earned. The ITAT's decision was consistent with previous rulings and established legal principles. The ITAT dismissed the Revenue's appeal, affirming the deletion of the addition made by the AO.