2021 (4) TMI 336 - AT - Income Tax

Disallowance u/s 14A - addition under the normal provisions as well as while computing income under section 115JB - suo motu disallowance - HELD THAT - Legal principles on this issue are now fairly well settled. The decisions referred to by learned Commissioner (Appeals) clearly express this view. Even, in the decisions cited before us by learned Counsel for assessee, as noted earlier, HSBC INVEST DIRECT (INDIA) LTD. 2019 (2) TMI 731 - BOMBAY HIGH COURT has also expressed the view that disallowance under section 14A cannot exceed the exempt income earned during the year. Therefore, keeping in view the ratio laid down in various decisions, including, the decisions of Hon ble jurisdictional High Court, supra, we uphold the decision of learned Commissioner (Appeals) in restricting the disallowance under section 14A to the extent of exempt income earned during the year. Disallowance under section 14A r.w.r. 8D while computing book profit under section 115JB - As squarely covered in favour of the assessee by the decision in case of CIT vs Vireet Investments (P) Ltd 2017 (6) TMI 1124 - ITAT DELHI Though, under Explanation I(f) to section 115JB of the Act, the assessing officer is empowered to disallow expenditure attributable to exempt income; however, the assessing officer has to identify the expenditure incurred by the assessee which is directly attributable to earning of exempt income. In the facts of the present case, the assessing officer has not identified any such expenditure. Therefore, we do not find any reason to interfere with the decision learned Commissioner (Appeals) on the issue. Grounds raised are dismissed. Appeal is dismissed.

Summary

Issues:
1. Disallowance made under section 14A of the Act.
2. Disallowance under section 14A while computing income under section 115JB of the Act.

Issue 1: Disallowance made under section 14A of the Act:
The appeal by the revenue was against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2013-14, regarding the part deletion of disallowance made under section 14A of the Act. The assessing officer noticed discrepancies in the balance-sheet of the assessee, leading to a disallowance computation under Rule 8D. The assessee argued that no further disallowance should be made as they had already disallowed a certain amount under section 14A. The Commissioner (Appeals) concluded that disallowance under section 14A with Rule 8D cannot exceed the exempt income earned during the year. The assessing officer's disallowance was restricted accordingly, and the Commissioner directed the consideration of exempt income received from a partnership firm. The Tribunal upheld the Commissioner's decision based on established legal principles and previous judicial precedents.

Issue 2: Disallowance under section 14A while computing income under section 115JB of the Act:
The issue of disallowance under section 14A while computing book profit under section 115JB was also addressed. The Departmental Representative argued for disallowance under Rule 8D and cited Explanation I(f) to section 115JB. However, the assessing officer had not identified any specific expenditure directly attributable to earning exempt income. The Tribunal referred to the decision of the ITAT, Special Bench, New Delhi, in a specific case and concluded that the assessing officer must identify such expenditure for disallowance under section 115JB. As no identifiable expenditure was highlighted in the present case, the Tribunal upheld the decision of the Commissioner (Appeals) in favor of the assessee. Therefore, the grounds raised by the revenue were dismissed, and the appeal was ultimately dismissed.

This detailed analysis of the legal judgment addresses the issues of disallowance under section 14A of the Act and the specific disallowance while computing income under section 115JB of the Act, providing a comprehensive overview of the Tribunal's decision and the reasoning behind it.