M/S BUSINESS MATCH SERVICES (INDIA) PRIVATE LIMITED,MUMBAI vs. ACIT CIRCLE 12(1)(2) , MUMBAI
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI B R BASKARAN, AM & MS. KAVITHA RAJAGOPAL, JM
Per Kavitha Rajagopal, J M: This appeal has been filed by assessee challenging the order of learned
Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless
Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the
Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2013-14.
The assessee has challenged the grounds of disallowance of Rs.9,60,000/-
u/s.14A of the Act as against the exempt income of Rs.7,29,565/- which is out of the
dividend income earned by the assessee.
The brief facts are that the assessee is a private limited company engaged in the
business of investments in shares and immovable properties, finance activities and
trading in shares and securities including derivatives. The assessee company had filed
2 ITA No.3284/Mum/2022 (A.Y.2013-14) M/s. Business Match Services (India) Private Limited vs. ACIT its return of income date and 30.09.2013 declaring loss of Rs.3,38,04,124/- and the
return of income was subsequently revised on 31.03.2015 claiming loss on inventory
valuation and declared total loss of Rs.4,90,00,948/-. In the return of income, the
assessee had voluntarily disallowed Rs.9,60,000/- u/s. 14A of the Act. The assessee’s
case was selected for scrutiny and assessment order dated 29.03.2016 was passed
u/s.143(3) of the Act were the Assessing Officer (A.O. for short) determined total
income at Rs.7,24,04,830/- by making various additions/disallowances. The assessee
challenged the impugned order before the learned CIT(A). Subsequent to this the
assessee’s case was reopened u/s. 147 of the Act for the reason that in the regular
assessment proceeding instead of the gross interest expense only the net interest expense
has been considered while computing the disallowance u/s. 14A read with Rule 8D of
the Act and, therefore, the same amounted to income chargeable to tax has escaped
assessment. Assessment order dated 27.12.2018 was passed u/s.143(3) r.w.s. 147 of the
Act and the AO had determined total income at Rs.9,10,06,662/-.
The assessee was in appeal before the ld. CIT(A) challenging the grounds of
reopening and the addition/ disallowances made by the AO in reassessment
proceedings. The actual exempt income earned by the assessee was Rs.7,29,565/- and
accordingly, the assessee contended that the disallowance u/s. 14A should not exceed
the exempt income. The ld. CIT(A), though accepted the above contentions in principle,
yet restricted the disallowance to Rs.9,60,000/-, since the assessee had made suo moto
disallowance of the same u/s. 14A of the Act. The ld. CIT(A) relied on the decision of
the Hon’ble Apex court in the case of CIT vs Maxoop investments Ltd in 402 ITR 640
(SC), wherein it was held that disallowance u/s.14A cannot exceed the exempt income
3 ITA No.3284/Mum/2022 (A.Y.2013-14) M/s. Business Match Services (India) Private Limited vs. ACIT earned by the assesse for that year. The ld. CIT(A) also relied on various other decisions
for the said proposition.
The assessee is in appeal before us challenging the order of the ld. CIT(A) in
restricting the disallowance to Rs.9,60,000/- u/s.14A of the Act on the ground that the
same shall not exceed the exempt income earned by the assessee for that year.
The ld. Authorised Representative (ld. AR for short) for the assessee contended
that the assessee has earned exempt income of Rs.7,29,565/- during the impugned year
and had suo moto made a disallowance of Rs.9,60,000/- as per the provisions of section
14A of the Act. The ld.AR further stated that the ld.CIT(A) ought not to have restricted
the disallowance exceeding the exempt income earned by the assessee. The ld. AR
relied on the decisions rendered by the co-ordinate bench in the case of a group concern
of the assessee in ITO vs. Centrum Capital Ltd. (in ITA No. 497/Mum/2019).
The learned Departmental Representative (ld. DR for short) for the Revenue, on
the other hand, had controverted the said fact and contended that the ld. CIT(A) was
right in disallowing the impugned amount which was suo moto made by the assessee as
being 20% of the fees paid to M/s. K. Right Management Solution Pvt. Ltd. The ld. DR
further contended that since the assessee itself had agreed to the disallowance of
Rs.9,60,000/-, the ground raised by the assessee does not hold merit. The ld. DR relied
on the order of the ld. CIT(A).
We have heard the rival submissions and perused the materials available on
record. It is observed that the assessee had earned dividend income of Rs.7,29,565/-
during the year under consideration and the same is reflected at note 15 of the financial
4 ITA No.3284/Mum/2022 (A.Y.2013-14) M/s. Business Match Services (India) Private Limited vs. ACIT statement under the head other income. The assessee is said to have disallowed
Rs.9,60,000/- u/s.14A of the Act in its return of income which is stated to be 20% of
fees paid by the assessee to M/s. K. Right Management Solution Private limited. We
are of the considered opinion that the ld. CIT(A) should have restricted the disallowance
u/s.14A to the extent of the exempt income earned by the assessee for the year under
consideration. This issue before us is no longer res integra as various courts including
the Hon'ble Apex Court has held that disallowance u/s.14A read with rule 8D should not
exceed the exempt income earned by the assessee. We would like to place reliance on
the decision of the Tribunal in the case of Chalet Hotels Ltd. Vs. DCIT, CC-4(2) (in ITA
No. 3747/Mum/2019 vide order dated 11.01.2021 for A.Y. 2015-16), wherein on
similar facts where the assessee had made suo moto disallowance more than that of the
exempt income earned for that year, it was held that the disallowance should be only to
the extent of the exempt income earned and not more than that. In light of the said
positions, we are of the considered view that disallowances u/s.14A read with rule 8D is
to be restricted only to the extent of the exempt income earned by the assessee during
the impugned year. We, therefore, direct the A.O. to recompute the income of the
assessee accordingly. Hence, the ground raised by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 12.05.2023
Sd/- Sd/-
(B. R. Baskaran) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 12.05.2023 Roshani, Sr. PS
5 ITA No.3284/Mum/2022 (A.Y.2013-14) M/s. Business Match Services (India) Private Limited vs. ACIT Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai
