2023 (12) TMI 1229 - AT - Income Tax

Disallowance u/s. 14 r.w.s. 8D - sufficiency of own funds - expenditure incurred on earning exempt income - HELD THAT - The undisputed fact is that the exempt income of the assessee is Rs. 1615/- only, therefore, in the light of the decision of Caraf Builders and Construction 2018 (12) TMI 410 - DELHI HIGH COURT disallowance should not exceed the exempt income. Suo-moto disallowance As decided in case of GMR Enterprises Private Limited 2021 (11) TMI 565 - ITAT BANGALORE following the decision of M/s. Marg Limited 2020 (10) TMI 102 - MADRAS HIGH COURT disallowance u/s 14A of the 1.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s. 14 A of the IT Act while filing the return of income - we direct the AO to delete the disallowance and restrict the same to Rs. 1615/- only. Appeal of the assessee is partly allowed.

Summary

Issues:
The judgment involves the disallowance of expenses under section 14 read with rule 8D of the Income Tax Act, pertaining to the assessment year 2017-18.

Condensation of Delay:
The appeal was delayed by 566 days, and the assessee filed for condonation of delay supported by an affidavit. The tribunal found that there was a reasonable cause for the delay and, in the interest of justice, condoned the delay.

Disallowance of Expenses:
The assessee earned dividend income of Rs. 1615, claimed as exempt under section 10 of the Act. The assessee voluntarily disallowed Rs. 565962 under section 14A. However, the AO computed the disallowance at Rs. 11,31,924 under rule 8D, resulting in an addition of Rs. 565962. The tribunal held that the disallowance should not exceed the exempt income earned, as per the decision of the Hon'ble Delhi High Court in Caraf Builders and Construction case.

Judicial Precedents and Decision:
The tribunal referred to a case involving GMR Enterprises Private Limited and the judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT. The Madras High Court held that the disallowance under section 14A cannot exceed the exempt income earned during the relevant assessment year. Following this precedent, the tribunal directed the AO to restrict the disallowance to Rs. 1615 only, deleting the excess disallowance made by the AO.

Conclusion:
The tribunal partly allowed the appeal of the assessee, directing the AO to delete the disallowance and restrict it to Rs. 1615 only, in line with the judicial precedents cited. The order was pronounced in the open court on 22.12.2023.