M/S TDS MANAGEMENT CONSULTANTS P. LTD.,MOHALI vs. DCIT, MOHALI

This is an appeal by the Assessee against the order dt. 24/10/2016 of Ld. CIT(A)-2, Chandigarh.

Following grounds have been raised in this appeal:

The only grievance of the assessee in this appeal relates to the sustenance of disallowance of Rs. 3,95,721/- made by the A.O. by invoking the provisions of Section 14AA of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) read with Rule 8D(2)(ii) of the Income Tax Rules.

The facts of the case in brief are that the assessee filed its return of income on 29/09/2013 declaring an income of Rs. 3,31,42,040/- which was processed under section 143(1) of the Act, subsequently, the case was selected for scrutiny. During the course of assessment proceedings the A.O. noticed that the assessee had earned dividend income of Rs. 10,760/- which was not claimed as exempt income in the Income Tax Return. The A.O. however invoked the provisions of Section 14A of the Act read with rule 8D of the Income Tax Rules and made the disallowance of Rs. 4,13,462/- including the disallowance out of interest expenses of Rs. 395721/-.

Being aggrieved the assessee carried the matter to the Ld. CIT(A) who sustained the disallowance made by the A.O.

Now the assessee is in appeal.

The Ld. Counsel for the assessee at the very outset stated that no disallowance can be made more than the exempt income. It was stated that the exempt income in this case was of Rs. 10,760/- therefore the disallowance could have been made to that extent only. The reliance was placed on the following case laws:

In his rival submissions the Ld. DR strongly supported the impugned order passed by the Ld. CIT(A) and reiterated the observations made in the said order as well as in the assessment order dt. 30/11/2015 passed by the A.O.

We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the assessee earned the dividend income of Rs. 10,760/- which is exempted from tax under the Income Tax Act therefore the disallowance can be made to the extent of the said income only as per the ratio laid down by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (supra) wherein it has been held that:

In the result, appeal of the Assessee is partly allowed.