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Income Tax Appellate Tribunal, DELHI BENCH “C” DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
O R D E R PER PRADIP KUMAR KEDIA, A.M.:
The captioned cross appeals have been filed by the Revenue and the Assessee respectively against the order of the CIT(A), certain facets of applicability of Section 14A has been challenged. 2. The grounds of appeal raised by the assessee reads as under:
“1. That on the facts and law involved, the Ld. Commissioner
I.T.A. No.3480 & 3966/DEL/2018 2 of Income-tax (Appeals) [Ld. CIT(A)] has erred in restricting the disallowance u/s. 14A to the extent of dividend income of Rs.57,60,303/- and not to Rs.42,81,109/- as computed and claimed by the assessee.
That on the facts and law involved, the Ld. CIT(A) has erred in not accepting the claim of disallowance u/s 14A at Rs. 42,81,109/- as computed and claimed by the assessee during appellate proceedings on correct application of Rule 8D(iii) based on binding decisions of jurisdictional High Court of Delhi in the case of ACB India Pvt. Ltd. v. ACIT reported in [2015] 374 ITR 108 (Delhi)as per which investments on which no exempt income is received are not to be considered while computing average investments.
3. That without prejudice to the Ground No. 3 above, Ld. CIT(A) has erred in not considering the claim of the assessee that Rule 8D is not mandatory and the disallowance u/s 14A computed by the assessee cannot be rejected by the Assessing Offices without any cogent reason.
4. That on the facts and law involved the Ld. CIT(A) has erred in confirming the addition of Rs. 4,64,720 being the amount of difference in receipts as per Form 26AS and receipts as per Profit & Loss Account without appreciating the submissions of the assessee and on the mere ground that the explanation offered by the Assessee is not acceptable.”
The grounds of appeal raised by the Revenue reads as under:
“1. That on the facts and circumstances of the case and in law, the order of Commissioner of income Tax(Appeal) is erroneous and bad in law. ,
I.T.A. No.3480 & 3966/DEL/2018 3
2. That on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowances of Rs. 1,71,89,663/- u/s 14A r.w. Rule 8D made by the AO.”
Briefly stated, the assessee is engaged in the business of production of construction and supplying industrial security and medical manpower. The return filed by the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer inter alia noted that the assessee has made suo motu disallowance of Rs.47,92,000/- towards estimated expenditure giving rise to or have potential to earn exempt income. The Assessing Officer invoked provisions of Section 14A and reworked the disallowance of Rs.2,29,49,966/- as against exempt income claimed at Rs.57,60,303/-. The Assessing Officer thus made additional disallowance of Rs.1,81,57,966/- over and above the disallowance of Rs.47,92,000/- made by the assessee.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) noted that the total exempt income (dividend income) stands at Rs.57,60,303/- received only from one company M/s. Jaypee Infratech Ltd. No dividend was received from investments in any other company. The CIT(A) placed reliance upon the decision of the Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. vs. CIT, 372 ITR 694 (Del) and held that disallowance made under Section 14A of the Act cannot exceed exempt income. It was further noted that the assessee has suo motu computed disallowance under Section 14A at Rs.47,92,000/-. Consequently, the CIT(A) upheld the addition under Section 14A amounting to Rs.9,68,303/- being the difference between exempt income and disallowance already carried out.
I.T.A. No.3480 & 3966/DEL/2018 4
Aggrieved by the partial relief granted by the CIT(A), both assessee as well as Revenue are in present appeals.
While it is the case of the assessee that the disallowance permissible in the light of the judicial precedents is Rs.42,81,109/- whereas the assessee itself has made disallowance of Rs.47,92,000/- and therefore no further disallowance is called for. The Revenue has challenged the action of the CIT(A) in reversing the disallowance computed by the Assessing Officer in terms of Rule 8D of the Income Tax Rules.
We have carefully considered the rival submissions.
8.1 The Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. vs. CIT (2015) 372 ITR 694 (Del.); Ashish Estate & Promoters Pvt. Ltd. vs. CIT (2018) 257 Taxman 585 (Bom) and other plethora of judgments have held that disallowance under Section 14A cannot exceed exempt income. Thus, the action of the CIT(A) is not found to be inconsistent with the judicial precedents.
8.2 However, the Hon’ble Delhi High Court in PCIT vs. Caraf Builders and Construction Pvt. Ltd. (2019) 101 taxmann.com 167 (Del) (SLP Dismissed) (2019) 112 taxmann.com 322 (SC); ABC India Pvt. Ltd. vs. ACIT in (Del) and Special Bench in ACIT vs. Vireet Investments (2017) 165 ITD 27 (SB Delhi ITAT) have also stated that for the assessment year in question those investments which have not yielded any exempt income cannot be taken into account for the purposes of calculating disallowance under Section 14A of the Act read with Rule 8D of Income Tax Rules, 1963. The assessee in the instant case claims that where the investments not yielding exempt income are I.T.A. No.3480 & 3966/DEL/2018 5 excluded, the disallowance works out to Rs.42,81,109/- which exceeds the suo motu disallowance of Rs.47,92,000/- and thus the CIT(A) was not justified in enhancing the disallowance from Rs.47,92,000/- to Rs.57,60,303/-.
8.3 In the light of the binding precedents noted above, we find wholesome merit in the plea of the assessee. Consequently, while the claim of assessee deserves acceptance, the Revenue appeal is found to be devoid of any merit.
In the result, the appeal of the assessee is allowed whereas the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 22/08/2022.