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2020 (4) TMI 97 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D - Disallowance not exceeding the quantum of exempt income - HELD THAT - In the case of CIT Vs. Corrtech Energy Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT has held that in the absence of any exempt income being claimed by the assessee provisions of section 14A r.w.r 8D could not be invoked. The rationale behind this judgment is that the amount of disallowance u/s 14A should not exceed the exempt income. The ld.AO was not justified in invoking provisions of section 14A of the Act in the present case. Moreover, the assessee has earned a small amount of ₹ 2,64,500/-, whereas the ld.AO has calculated a whopping sum of ₹ 7,72,41,277/- as proportionate expenditure for earning the exempt income. Even assuming that some expenditure is required to be disallowed but such disallowance should not exceed the quantum of exempt income. Therefore, we uphold order of the ld.CIT(A) on this issue, and dismiss the ground of appeal of the Revenue.
Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 r.w. Rule 8D. Analysis: 1. The Revenue appealed against the order of the ld.CIT(A) restricting the disallowance made under section 14A of the Income Tax Act, 1961. The AO had disallowed &8377; 7,72,41,277/- as proportionate expenditure for earning tax-free income of &8377; 2,64,500/-. The assessee contended that no disallowance should be made as it had sufficient interest-free funds to cover the investments. The ld.CIT(A) restricted the disallowance to the exempt income amount. The Tribunal upheld the ld.CIT(A)'s order, stating that provisions of section 14A r.w.rule 8D were not applicable as the investment was strategic and not made for earning dividend income. The Tribunal emphasized that the disallowance should not exceed the exempt income amount. The judgment cited the case of CIT Vs. Corrtech Energy Ltd., where it was held that section 14A provisions cannot be invoked if there is no exempt income claimed by the assessee. 2. The Tribunal found that the AO's calculation of &8377; 7,72,41,277/- as proportionate expenditure for earning the exempt income of &8377; 2,64,500/- was unjustified. The Tribunal emphasized that any disallowance should not exceed the quantum of exempt income. The Tribunal upheld the ld.CIT(A)'s decision to restrict the disallowance to the extent of the exempt income, in line with the decision for the Asstt.Year 2011-12. The Tribunal dismissed the Revenue's appeal, stating that the ld.AO was not justified in invoking section 14A provisions and that the disallowance should not exceed the amount of exempt income. 3. The Tribunal also noted that the assessee's own funds were significantly higher than the investment made during the year, indicating that the investment was not made out of borrowed funds. The Tribunal concurred with the ld.CIT(A)'s appreciation of the facts and previous decisions, emphasizing that the disallowance should be limited to the exempt income. The Tribunal cited the case law to support its decision and dismissed the Revenue's appeal. 4. The Tribunal further mentioned that the assessee did not press for the appeal regarding the cross objection, leading to its dismissal for want of prosecution. In conclusion, both the Revenue's appeal and the assessee's cross objection were dismissed by the Tribunal. Judgment Summary: The Appellate Tribunal ITAT Ahmedabad upheld the ld.CIT(A)'s decision to restrict the disallowance under section 14A to the amount of exempt income earned by the assessee. The Tribunal emphasized that the disallowance should not exceed the exempt income and that provisions of section 14A should not be invoked if there is no exempt income claimed. The Tribunal dismissed the Revenue's appeal and the assessee's cross objection for want of prosecution.
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