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TMI Blog2024 (5) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... ance u/s 40(a)(ia) of the Act, holding it to be a person in default, particularly when the AO has not called into question the contents of the Forms 26A. For the mere reason of non-filing of Form 26A before the Director General of Income Tax (Systems) also, where the payee has filed its return of income disclosing the payment received by it and has also paid tax thereon. Accordingly, finding no merit therein, ground Nos. 1 2 are rejected, upholding the order passed by the ld. CIT(A) on this issue. Disallowance u/s 14A r.w.r 8D - Disallowance was suo-moto by the assessee - CIT(A) agreed with the assessee s contention that the disallowance u/s 14A of the Act cannot exceed the amount of exempt income earned by the assessee - HELD THAT:- As decided in M/s SEL Manufacturing Co. Ltd [ 2019 (2) TMI 2057 - ITAT CHANDIGARH] disallowance u/s 14A cannot exceed the total exempt income earned by the assessee during the year. No contrary decision has been brought to our notice. We direct that the disallowance u/s 14A of the Act should be restricted which is the amount of dividend income earned by the assessee during the year under consideration. Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment in its appeal in ITA No. 534/CHD/2023 has raised the following grounds : (i) The Ld, CTT(A), on facts and circumstances of j the ease, has erred in deleting the disallowance made of Rs. 1,86,96,356/- u/s 40(a)(ia) of the Act by the AO holding that the assessee has failed the mandatory condition of submission of Form 26A to ; the Director General of Income Tax (System) through due procedure as prescribed in section 201 (1) of the Act, 1961 read with Rule 31ACB of Income Tax Rule, 1962. (ii) The Ld. CIT(A), on facts and circumstances of the case, has erred in holding that mere non-filing of the Form 26A bfifore the Director General (System), the appellant should not be held as in default with Rule 31 ACB, when furnishing of Form 26A by die assessee to the Director General of income Tax (System) in accordance with the procedures, formats and standards specified in order sub-rule(2) of Rule 31 ACB, is a mandatory condition for not being treated as assessee in default. (iii) That the Ld. CIT(A.) has erred in deleting the disallowance made of Rs. 2,09,78,997/- u/s 14A r.w. Rule 8D by the AO without appreciating the facts of the case. (iv) That the Id. CIT(A), on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(a)(ia) of the Income Tax Act, 1961 be not made, as TDS was not deducted on the interest paid to M/s Conquer Investments & Finance Pvt. Ltd., M/s Ind Swift Laboratories Ltd. and M/s Fortune India Constructions Ltd. 6.1 The assessee, in reply, submitted copy of Form 26A relating to M/s Conquer Investments & Finance Pvt. Ltd., M/s Conquer Investments & Finance Pvt. Ltd., M/s Ind Swift Laboratories Ltd. and M/s Fortune India Constructions Ltd., alongwith their annexures to the AO. Copies thereof have been placed at APB 75-84. 6.2 Further, vide reply (APB 85-86) dated 06.12.2016, the assessee submitted, before the AO, the details of interest on loan paid to M/s Conquer Investments & Finance Pvt. Ltd., M/s Ind Swift Laboratories Ltd. and M/s Fortune India Constructions Ltd. These are at APB 89. 6.3 The AO, however, passed the assessment order, making disallowance of Rs. 1,86,96,356/- u/s 40(a)(ia) of the Income Tax Act, for the reason that the assessee had not filed the Form 26A before the Director General of Income Tax (Systems). The AO held that as per the provisions of Section 40(a)(ia) read with those of Section 201 of the Act and Rule 37ACB of the Income Tax Rules, the furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income declared by him in such return of income and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed, then it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. 8.1 It has further been contended that Rule 31ACB of the IT Rules prescribes the norm for furnishing certificate of the Accountant under the 1st proviso to Section 201(1), i.e., Form 26A; that sub-rule (2) of Rule 31ACB unequivocally provides that the Director General of Income Tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of the Form 26A and shall be responsible for the day to day administration in relation to furnishing and verification of the Form 26A in the manner specified. It has been contended that since these mandatory provisions were violated by the assessee by not furnishing the Form 26A before the Director General of Income Tax (Systems), the AO was entirely correct in making the disallowance and the ld. CIT(A) has erred in deleting the same. 8.2 On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as provided under the Income Tax Act, but no disallowance of the expenditure can be made u/s 40(a)(ia) of the Act. For holding so, the Bench followed the decision of the Mumbai Bench of the Tribunal in the case of "Karwat Steel Traders Vs ITO", 145 ITD 370 (Mum)., wherein, it was held that the amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter VII-B and such tax has not been deducted or, after deduction, has not been paid; that the assessee was to deduct tax under the provisions of Section 194A; that Section 194A is further clarified by the provisions of Section 197A(1A), wherein, if a person furnishes a declaration in writing in the prescribed form and verified in the prescribed manner to the effect that tax on his estimated total income is to be included in computation will be 'nil', there is no need to deduct tax; that the assessee had received such forms as prescribed, from those persons to whom interest was paid/being paid and, accordingly, no deduction of tax was to be made in such cases; and that the penalty for non-furnishing of the declarations to the Commissioner, as prescribed, may result in invoking penalty as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignoring the interest element, which was being considered in computing the disallowance as per Rule 8D. 14.1 The ld. CIT(A) agreed with the assessee's contention that the disallowance u/s 14A of the Act cannot exceed the amount of exempt income earned by the assessee. The Department is aggrieved of this action of the ld. CIT(A). The ld. CIT(A), however, restricted the disallowance u/s 14A of the Act to the amount of suo-moto disallowance made by the assessee, i.e., Rs. 48,48,048/-. The Cross Objection of the assessee is aimed against this. The ld. CIT(A) held that reliance was being placed on various judicial decisions including that of the jurisdictional High Court, that disallowance u/s 14A read with Rule 8D cannot exceed the exempt income, but since the assessee itself had suo-moto disallowed an amount of Rs. 48,48,000/- u/s 14A, the AO was being directed to restrict the disallowance u/s 14A to Rs. 48,48,000/-. 14.2 The Department, thus, prays that the entire disallowance, amounting to Rs. 2,09,78,999/- be restored, whereas it is the request of the assessee that the entire disallowance be ordered to be done away with in place of the restriction to the amount of Rs. 48,48, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras High Court). Further, reliance has also been placed on the following decisions : i) Ansal Buildwell Limited Versus ACIT, Circle-2 (2) New, Delhi ii) GMR Enterprises Pvt. Ltd. (successor to GMR Holdings Pvt. Ltd. Versus The Dy. Commissioner of Income-tax, Central Circle 2 (2) Bangalore., 2021 (11) TMI 565 - ITAT Bangalore iii) Dy. CIT, Circle-13 (2) , New Delhi Versus M/s JITF Shipyard Ltd. and M/s JITF Shipyard Ltd. versus Asstt. CIT, Circle-13 (2) , Central Revenue New Delhi, 2023 (4) TMI 144 - ITAT Delhi. 16. Having considered the matter in the light of the rival contentions and the material brought on record, we find that, shorn of the undisputed facts, in "M/s Marg Ltd." (supra), the Hon'ble Madras High Court held that even the large disallowance proposed by the assessee himself in the computation of disallowance under Rule 8D made by him, cannot be approved. Relying on "Pragati Krishna Gramin Bank" [2018] (6) TMI 1283 - (Karnataka High Court), it was held that the legal position, as interpreted by various judgements, remains that the disallowance of expenditure incurred to earn exempt income cannot exceed the exempted income itself and neither the assessee, nor ..... 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