2020 (12) TMI 161 - AT - Income Tax

Disallowance u/s. 14A - AO took the view that the assessee has not computed disallowance as per Rule 8D, thus accordingly he computed the disallowance - Suo moto addition by assessee - HELD THAT - As during the year under consideration, the assessee has received dividend income of ₹ 8.47 crores and it has voluntarily disallowed a sum of ₹ 28.56 crores u/s. 14A - from the computation of income assessee has also earned Long term capital gain of ₹ 13 crores and claimed the same as exempt. Thus aggregate amount of exemption claimed was ₹ 21.47 crores. We also notice that the dividend income was received from one group company named M/s. Mindtree Limited and the long term capital gain was also earned on sale of shares of M/s. Mindtree limited. As in the earlier year, the disallowance made by the assessee voluntarily is more than the amount of exempted income. Hence,disallowance voluntarily made by the assessee would meet the requirements of sec. 14A of the Act. Accordingly, following the order passed in AY 2013-14, we are of the view that further disallowance made by the AO and confirmed by ld CIT(A) is not warranted in the facts and circumstances of the case. - Decided in favour of assessee.

Summary

Issues:
Challenge to order enhancing disallowance under section 14A of the Income Tax Act.

Analysis:
The appellant, engaged in managing hotels and resorts, challenged the decision of the ld CIT(A) confirming the enhancement of disallowance under section 14A made by the AO. The AO computed the disallowance under Rule 8D at ?84.56 crores, resulting in an additional disallowance of ?55.99 crores. The appellant contended that the disallowance voluntarily made exceeded the dividend income earned, citing precedents where similar disallowances were not upheld.

The appellant relied on prior decisions by the coordinate bench to support their argument that the disallowance under section 14A cannot surpass the dividend income received during the year. They emphasized that the voluntary disallowance already made by the appellant exceeded the dividend income, hence no further disallowance was warranted. The Tribunal had previously ruled in favor of the appellant in a similar case for AY 2013-14, where the enhancement of disallowance was deleted.

After hearing both parties, the Tribunal noted that in the current year, the appellant received dividend income of ?8.47 crores and voluntarily disallowed ?28.56 crores under section 14A. Additionally, the appellant earned long-term capital gains of ?13 crores, claiming it as exempt income. Notably, both the dividend income and capital gains were from the same group company. Observing that the voluntary disallowance exceeded the exempted income, the Tribunal concluded that no further disallowance was necessary, following the decision made for AY 2013-14.

Ultimately, the Tribunal allowed the appeal, setting aside the order of the ld CIT(A) and directing the AO to delete the additional disallowance made under section 14A. The judgment was pronounced in the Open Court on 7th October 2020.