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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The cross-appeals appeals have been filed at the instance of the Assessee and Revenue against the order of the Commissioner of Income Tax (Appeals)–1, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- 1/DCIT Circle-1(1)(1)/345/2016-17 dated 18/09/2017 arising in the (By Assessee) and (By Revenue) Adani Properties Pvt.Ltd. vs. DCIT (cross-appeals) Asst.Year - 2013-14
- 2 - assessment order passed under s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 30/11/2016 relevant to Assessment Year (AY) 2013-14.
In Assessee’s appeal i.e. for AY 2013-14, the Assessee has raised the following grounds of appeal:
(All the Grounds of appeal are independent of and without prejudice to each other)
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding disallowance of Rs.1,38,04,106/- u/s.14A r.w.r.8D of the Act when no such disallowance was called for. 1.1 On the facts and in the circumstances of the case, the learned CIT(A) erred in restricting the disallowance u/s.14A r.w.r.8D made by Ld.Assessing Officer to Rs.1,38,04,106/- being proportionate interest disallowance under Rule 8D(2)(ii). The CIT(A) ought to have appreciated that no such disallowance is warranted as the appellant has suo motto disallowed interest expenditure which is attributable for earning exempt income and both Ld.Assessing Officer and CIT(A) have not pointed out any discrepancy in the working adopted by appellant.
2. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
The Assessee has also raised the additional ground of appeal vide letter dated 9th September 2019 which reads as under:
“On the facts and in the circumstances of the case, following the ratio of Hon’ble SC in the case of Pr CIT V State Bank of Patiala reported in (2018) 99 taxmann.com 286, the disallowance u/s.14A should not exceed the exempt income earned by assessee of Rs.11,83,96,894/-. Accordingly, Hon’ble ITAT may direct the Assessing Officer to restrict disallowance upto Rs.11,83,96,894/-.”
ITA No.2617/Ahd/2017 (By Assessee) and (By Revenue) Adani Properties Pvt.Ltd. vs. DCIT (cross-appeals) Asst.Year - 2013-14 - 3 - In Revenue’s appeal, i.e. for AY 2013-14, the Revenue has raised the following grounds of appeal:
(1) That the Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A of Rs.23,29,20,266/- to Rs.1,38,04,106/-. (2) The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.
First we take up assessee’s appeal bearing for the assessment year 2013-14.
The solitary issue raised by the assessee in the main and the additional ground of appeal is against the confirmation of the disallowance in part for Rs. 1,38,04,106 under the provisions of section 14A read with rule 8D of Income Tax Rules on account of interest expenses.
The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of dealing/investment in shares, securities and mutual fund etc. The assessee in the year under consideration has declared exempted income amounting to ₹11,83,96,894 and made the disallowance under the provisions of section 14A of the Act against such income for ₹35,73,72,959.00 only. However, the AO found that the disallowance made by the assessee was not as per the provisions of rule 8D of Income Tax Rule. Accordingly, he (By Assessee) and (By Revenue) Adani Properties Pvt.Ltd. vs. DCIT (cross-appeals) Asst.Year - 2013-14 - 4 - rejected the working for the disallowance made by the assessee against the exempted income in pursuance to the provisions of section 14A of the Act. Thus the AO made the disallowance of the expenses against the exempted income as per the provisions of rule 8D of Income Tax Rule as detailed under:
S. No. Particulars Amount (Rs.) 1. Direct expenses 2,151.00 2. Interest expenses 37,45,60,672.00 3. Administrative expenses 15,19,39,060.00 Total 52,65,01,883.00 Less: the amount already disallowed 29,35,81,617.00 Balance amount to be disallowed 23,29,20,266. 00 In view of the above, the AO disallowed the sum of Rs. 23,29,20,266.00 under the provisions of section 14A read with rule 8D of Income Tax Rules and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A) who has restricted the amount of disallowance to ₹1,38,04,106.00 and deleted the balance amount of Rs. 21,91,16,160.00 only.
Being aggrieved by order of the learned CIT(A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the (By Assessee) and (By Revenue) Adani Properties Pvt.Ltd. vs. DCIT (cross-appeals) Asst.Year - 2013-14 - 5 - confirmation of the addition for ₹1,38,04,106.00 whereas the Revenue is in appeal against the deletion of the addition of Rs. 21,91,16,160.00.
Both the learned AR and the DR before us vehemently supported the order of the respective authorities below to the extent favourable to them.
We have all the rival contentions of both the parties and perused the materials available on record. Admittedly, the exempted income declared by the assessee is of ₹11,83,96,894.00 only which is not in dispute. The Hon’ble Gujarat High Court in the case of CIT vs. Corrtech Energy Private Ltd reported in 45 taxmann.com 116 has held that the amount of disallowance under section 14A read with rule 8D cannot exceed the amount of the exempted income. The relevant extract of the order is reproduced as under:
“Section 14A(1) provides that for the purpose of computing total income under chapter IV, 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 under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.”
6.1. We also find support and guidance from the judgment of the Hon’ble Supreme Court in the case of PCIT Vs. State Bank of Patiala (By Assessee) and (By Revenue) Adani Properties Pvt.Ltd. vs. DCIT (cross-appeals) Asst.Year - 2013-14 - 6 - reported in 99 Taxmann.com 26 wherein the SLP was dismissed involving the identical facts and circumstances.
6.2. In view of the above, we hold that the amount of disallowance as discussed above is not warranted in the present facts and circumstances. As such, the amount of the disallowance under section 14A r.w.r. 8D of Income Tax Rules cannot exceed the amount of disallowance made by the assessee i.e. Rs. 29,35,81,617.00 in the income tax return. Accordingly, we delete the addition made by the AO in the case of the assessee which was subsequently confirmed by the ld. CIT(A). Similarly, we also confirm the deletion as made by the learned CIT-A in the appeal of the Revenue. Hence, the ground of appeal of the assessee is allowed whereas the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Assessee is allowed and the appeal of the Revenue is dismissed.