2020 (10) TMI 358 - AT - Income Tax

Disallowance u/s.14(A) - suomotu disallowance done by the assessee itself - HELD THAT - CIT(A) has referred in the case of Joint Investment P. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT correctly for the proposition that disallowance u/s. 14A cannot exceed the exempt income. In this view of the matter, as held that the disallowance in this case will not exceed the suomotu disallowance done by the assessee which was more than the exempt income. - Decided against revenue.

Summary

Issues:
- Disallowance under section 14(A) of the Income Tax Act, 1961.
- Appeal by Revenue and cross objection by Assessee.
- Restriction of disallowance to exempt income.
- Validity of cross objection raised for the first time before ITAT.

Analysis:

1. Disallowance under section 14(A) of the Income Tax Act, 1961:
- The Assessing Officer made a disallowance of ?10,91,61,614 under section 14A of the Act.
- The ld. CIT(A) referred to a Delhi High Court decision stating that disallowance under section 14A cannot exceed the exempt income.
- The ld. CIT(A) held that the disallowance should not exceed the suomotu disallowance done by the assessee, which was more than the exempt income.
- The ITAT restricted the disallowance to ?44,250, as the total exempt income earned by the Appellant was only ?44,250.
- The disallowance made by the AO was deleted, and the appeal of the assessee on this ground was allowed.

2. Appeal by Revenue and cross objection by Assessee:
- The Revenue appealed against the order of the ld. CIT(A) regarding the disallowance under section 14A.
- The Revenue's appeal was dismissed by the ITAT, as the ld. CIT(A)'s order was supported by the Hon'ble Delhi High Court and the Hon'ble jurisdictional High Court.
- The cross objection by the assessee was based on the argument that the disallowance should be restricted to the exempt income of ?44,250.
- The ITAT allowed the cross objection of the assessee, citing previous tribunal decisions and legal provisions.

3. Restriction of disallowance to exempt income:
- The ITAT upheld the proposition that disallowance under section 14A should not exceed the exempt income earned by the assessee.
- The ITAT relied on relevant legal precedents and directed the assessing officer to grant necessary relief to the assessee based on this principle.

4. Validity of cross objection raised for the first time before ITAT:
- The ITAT addressed the objection raised by the ld. DR regarding the ground taken in the cross objection.
- The ITAT referred to legal provisions and Supreme Court decisions to support the admissibility of the ground raised by the assessee in the cross objection.
- The ITAT dismissed the objection and allowed the cross objection of the assessee, emphasizing the right of the assessee to seek remedy before the appellate forum.

In conclusion, the ITAT upheld the principle that disallowance under section 14A should not exceed the exempt income earned by the assessee. The Revenue's appeal was dismissed, and the cross objection by the assessee was allowed, leading to the deletion of the disallowance made by the AO. The ITAT's decision was supported by legal precedents and Supreme Court judgments, ensuring a fair outcome for the assessee in this case.