2023 (8) TMI 37 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee submitted that the disallowance be restricted to the total exempt income - CIT(A) restricted the disallowance u/s 14A to the exempt income earned by the assessee and upheld the addition partly - HELD THAT - CIT(A) accepting the contention of the assessee which was in line with the prevailing jurisprudence restricted the disallowance under section 14A to the quantum of exempt income earned by the assessee. We find that in Nirved Traders (P.) Ltd 2019 (4) TMI 1738 - BOMBAY HIGH COURT has held that disallowance under section 14A of the Act cannot be more than exempt income. No infirmity in the impugned order passed by the learned CIT(A). Accordingly the grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
The appeal filed by the Revenue challenges the deletion of disallowance u/s 14A under the Income Tax Act, 1961 for the assessment year 2013-14.

Dispute Regarding Disallowance u/s 14A:
The Revenue contended that the disallowance u/s 14A should not have been deleted without considering the fact that the assessee earned exempt income and the assessing officer rightly invoked section 14A read with rule 8D. The Revenue also argued that circular no.5/2014 mandates the disallowance of expenditure for earning exempt income u/s 14A even if the corresponding exempt income was not earned during the year. Additionally, the Revenue claimed that the CIT(A) unjustly restricted the disallowance u/s 14A to Rs. 9,55,880, ignoring the CBDT Circular No.5 of 2014. The Revenue sought to set aside the CIT(A)'s order, stating it is contrary to law and facts.

Facts of the Case:
The assessee, engaged in investments in shares and securities, declared a total loss for the year under consideration. During assessment proceedings, it was observed that the assessee held investments in equity shares and earned dividend income claimed as exempt. The assessing officer, not agreeing with the assessee's submissions, disallowed expenses connected with the exempt income under section 14A, resulting in a disallowance of Rs. 4,09,09,259. The CIT(A) restricted the disallowance to the exempt income earned by the assessee, upholding an addition of Rs. 9,55,880 and granting relief of Rs. 3,99,53,379.

Judgment:
The ITAT Mumbai upheld the CIT(A)'s decision, noting that the disallowance u/s 14A cannot exceed the exempt income earned. Citing relevant case laws, the ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The ITAT Mumbai dismissed the Revenue's appeal, affirming the CIT(A)'s decision to restrict the disallowance u/s 14A to the amount of exempt income earned by the assessee.