2023 (6) TMI 617 - HC - Income Tax

Disallowance u/s 14A - whether addition can exceed the amount of exempted dividend earned by the respondent/assessee? - HELD THAT - This issue is covered against the appellant/revenue by the judgment rendered by this court in Joint Investments Pvt. Ltd. v. Commissioner of Income Tax 2015 (3) TMI 155 - DELHI HIGH COURT as held window for disallowance is indicated in Section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount. In this case as well, the admitted position is that the dividend income, exempt u/s 10(34) Act, earned by the assessee, was Rs.45,06,37,556/-. and assessee had itself made a disallowance u/s 14A of the Act amounting to Rs.1,93,75,05,498/-. Over and above the aforesaid amount, AO had sought to disallow the amount equivalent to Rs.28,63,13,621/-. Clearly, the disallowance sought to engulf the exempt dividend income earned by the respondent/assessee.

Summary

Issues involved:
1. Condonation of delay in filing the appeal.
2. Interpretation of disallowance under Section 14A of the Income Tax Act, 1961.

Condonation of Delay:
An application was filed by the appellant seeking condonation of a 49-day delay in filing the appeal. The respondent did not oppose the application, leading to the delay being condoned and the application being disposed of.

Interpretation of Disallowance under Section 14A:
The appeal pertained to Assessment Year 2014-15 and challenged an order by the Income Tax Appellate Tribunal. The main issue raised was whether disallowance under Section 14A of the Act can exceed the amount of exempted dividend earned by the assessee. The court referred to a previous judgment where it was held that disallowance cannot exceed the expenditure incurred by the assessee in relation to the tax-exempt income. In the present case, the respondent had earned exempt dividend income of Rs. 45,06,37,556/- and made a disallowance of Rs. 1,93,75,05,498/- under Section 14A. The Assessing Officer sought to disallow an additional amount, which the court found to be engulfing the exempt dividend income. Citing the previous judgment, the court concluded that no substantial question of law arose, and the appeal was closed. Parties were directed to act based on the digitally signed copy of the order.