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TMI Blog2024 (7) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... , JCIT-DR ORDER PER KESHAV DUBEY, JUDICIAL MEMBER This appeal at the instance of the assessee is directed against the CIT(A)/NFAC order dated 22.02.2024 vide DIN Order No. ITBA/NFAC/S/250/2023-24/1061309577(1) passed u/s. 250 of the IT Act, 1961 for the A.Y. 2018-19. 2. The assessee has raised the following grounds- 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT [A] is not justified in upholding the order of assessment passed u/s 143(3) of the Act dated 29/03/2021, which is bad in law and is void ab initio in as much as the assessment order has been passed contrary to the procedure prescribed under the Faceless Assessment Scheme as no draft assessment order was issued calling for objections of the appellant and, thus impugned order passed contrary to Faceless Assessment Scheme, 2019 deserves to be annulled. 3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the disallowance of Rs. 1,32,40,428/- made u/s. 14A of the Act, which is opposed to law and facts of the appellant's case in as much as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crucial clarificatory amendment by inserting explanation to section 14A clarifying that the disallowance u/s. 14A shall be applicable even where no exempt income is earned during the year. The explanation uses the phrase and shall be deemed to have always applied in a case which makes it clear that provisions of amended section 14A apply to case of assessment year 2018-19 under consideration in the present appeal also. 3) The Ld.CIT(A) also of the opinion that in view of the CBDT Circular 05/2014 dated 11.02.2014 which also brings out the legislative intent that section 14A shall be operative even when there is no exempt income earned in a particular year. 4) Further, with regard to appellant s alternative argument that no exempt income was earned in the relevant year from some of the investments in debentures and bonds, the Ld.CIT(A) was of the view that though some of the investment might not have yielded any exempt income during the year under consideration but as these investment by their very nature are capable of yielding exempt income in future which is not includable in total income, these investment have to be reckoned for the purpose of computing the amount of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which does not form part of the total income under this Act :] 90 [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.] 13. On the plain reading of the above section, it is deduced that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. Further, sub-section(2) states that if the AO having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income or in case an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total income, the AO shall determine the amount of expenditure incurred in relation to such income in accordance with such method as maybe prescribed. 14. Now this method has been presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/- as observed by the Ld.AO in para 3 of the assessment order. Further the Ld.CIT(A) in para 9.1 has also observed that appellant had reported the exempt income amounting to Rs. 55,56,958/- in its ITR. Before us, the Ld.AR of the assessee could not produce any evidence to show that the company has not received any exempt income during the year under consideration. 20. Therefore the contention of the appellant that as it hadn t earned any exempt income during the year and therefore the disallowance made u/s. 14A of the IT Act deserves to be deleted completely is not tenable. The assessing officer disallowed pursuant to the formula devised as per Rule 8D of IT Rules, 1962 as the assessee has stated that no expenditure had been incurred in earning the exempt income and the assessee had not used interest bearing funds to make the investment as such and accordingly, the AO applied Rule 8D(ii) by taking 1% of the average of opening and closing balance of the value of investment as Rs. 1,32,40,428/- i.e. 1% of 132,40,42,815/-. It is well settled law that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee. The Coordinate bench of this Tribunal in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A of the I.T.Act. However, the Hon ble Madras High Court held that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year. The relevant finding of the Hon ble Madras High Court reads as follow:- 20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009- 10, as against the dividend income of Rs. 41,042/-and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs. 2,38,575/-, which was increased to Rs. 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs. 8,50,000/-, which was increased to Rs. 2,61,96,790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench of the Tribunal in assessee s own case (ITA No. 1338/Bang/2012 dated 28.08.2014 had directed the AO to examine and include only interest that is not attributable to any particular income / receipt for the purpose of arriving at the disallowance u/s. 8D(2)(ii) of the I.T. Rules. Respectfully following the decision of the coordinate Bench of the Tribunal in GMR Enterprises (supra) and assessee s own case (supra), we direct the AO to recomputed the Interest and the disallowance should be restricted to the amount of exempt income earned by the assessee. We direct accordingly. 21. In the light of aforesaid discussion relying on the above, we are of the opinion that in the present case, the amount of exempted income of Rs. 55,56,958/- was earned on investments and consequently, the amount of disallowance if at all to be made should be restricted to Rs. 55,56,958/-. We are also of the opinion that the disallowance under Rule 8D of IT Rules r.w.s. 14A of the act can never exceed the exempted income earned by the assessee as per proviso to Rule 8D(2) of the IT Rules, 1962. Accordingly, ground no. 3 is partly allowed. 22. In the result, the appeal of the assessee is partly allowed. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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