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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
This appeal filed by the Revenue is directed against order passed by the Commissioner of Income Tax (Appeals)-18, Chennai, dated 06.07.2022 and pertains to assessment year 2018-19.
The Revenue has raised following grounds of appeal:-
1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law. 2 .1 The learned CIT (A) erred in restricting the 14A disallowance from Rs. 1,73,64,658/- to Rs. 1,64,370/-, whereas the actual disallowance was worked out, as per the provisions of section 14A read with 8D of the ITRules. 2.2 The Id. CIT(A) erred in restricting the disallowance made u/s.14A of the IT Act, to the extent of exempt income earned, when
there is no express provisions in Section 14A and Rule 8D of the IT Rules, towards such restriction of the disallowance to the exempt income earned by the assessee. 2.3 The Id. CIT(A) erred in restricting the disallowance made u/s. 14A of the IT Act, to the extent of exempt income earned, without appreciating the fact that the assesee had average investments to the tune of Rs. 174 crores during the assessment year and further earning of exempt income is not the only criteria for effecting 14A disallowance, and the disallowance IS governed by Rule 8D of the IT Rules.”
Brief facts of the case are that the assessee company has filed its return of income for the assessment year 2018-19 on 12.10.2018 admitting total income of Rs.25,18,92,450/-. The case has been selected for scrutiny and assessment has been completed u/s.143(3) of the Income Tax Act, 1961 on 24.03.2021 and determined total income at Rs.27,79,08,891/- by making additions towards disallowance u/s.14A r.w. Rule 8D of Income Tax Rules, 1962, @ 1% of annual average of monthly opening and closing balance of value of investments for Rs.1,73,64,658/-. The assessee carried the matter in appeal before the First Appellate Authority and the learned CIT(A) for the reasons stated in their appellate order dated 06.07.2022, by following decision of the Hon’ble Madras High Court in the case of M/s.Marg Ltd. vs CIT 120 taxmann.com 84, restricted disallowances to the extent of exempt income earned for the relevant assessment year. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us.
The learned D.R submitted that the learned CIT(A) has erred in restricting disallowances computed u/s.14A of the Income Tax Act, 1961 r.w. Rule 8D I.T. Rules, 1962, to the extent of exempt income, without appreciating fact that as per provisions of section 14A of the Act, expenses relatable to exempt income should be disallowed, even in case where there is no exempt income for the relevant assessment year.
The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that it is well settled principles of law by the decision of the Jurisdictional High Court of Madras in the case of M/s. Marg Ltd. vs. CIT (supra), where it has been clearly held that disallowance u/s.14A cannot exceed exempt income. The learned CIT(A), after considering relevant facts has rightly restricted disallowance to the extent of exempt income earned for the relevant assessment year and therefore, their order should be upheld.
We have heard both the parties, perused material available on record and gone through orders of the authorities below. During the financial year relevant to assessment year 2018-19, the assessee has earned exempt income of Rs.1,64,370/- and has also made suo-motu disallowance towards expenses relatable to exempt income u/s.14A for Rs.1,33,354/- . The Assessing Officer has disallowed expenses relatable to exempt income u/s.14A by invoking Rule 8D @ 1% of annual average of monthly opening and closing balance of value of investments and determined total disallowance of Rs.1,73,64,658/-. We find that the Hon’ble Jurisdictional High Court of Madras in the case of M/s. Marg Ltd. (supra) had considered an identical issue of disallowances u/s.14A r.w.Rule 8D and after considering relevant facts held that disallowances contemplated u/s.14A cannot exceed exempt income earned for relevant assessment year. The learned CIT(A), after considering relevant facts and also by following decision of the Hon’ble Jurisdictional High Court of Madras in the case of M/s.Marg Ltd.(supra) has rightly restricted disallowance to the extent of exempt income earned for the relevant assessment year. Thus, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue.
In the result, appeal filed by the Revenue is dismissed.