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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
The appeals filed by the Revenue is directed against the order of the ld. CIT (A)-31, New Delhi both dated 29.10.2019 pertaining to assessment years 2015-16 & 2016-17. 2. The grounds of appeal
raised by the Revenue in AY 2015-16 read as under :- ./2020 ITA No.36/Del./2020
1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law and facts of the case in allowing u/s 14A r.w.r. 8D being 0.5% of average value of investment made by the AO and restricted the addition amounting of Rs.5,85,76,000/- to Rs.8,30,861/-.
3. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law and facts of the case that there is actual loss of revenue.
3. The order of Ld. CIT(A) is erroneous and not tenable in law and on facts.”
3. The grounds of appeal raised by the Revenue in AY 2016-17 read as under :-
“1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law and facts of the case in allowing u/s 14A r.w.r. 8D being 0.5% of average value of investment made by the AO and restricted the addition amounting of Rs.5,85,76,000/- to Rs.20,15,030/-.
3. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in law and facts of the case that there is actual loss of revenue.
3. The order of Ld. CIT(A) is erroneous and not tenable in law and on facts.”
Brief facts in both the assessment years are common. Before the Assessing Officer (AO), assessee mentioned that it has made investment in subsidiary/other companies to gain strategic control. It was further mentioned that no dividend income had been earned/received. However, AO rejected the contention and made a disallowance of Rs.5,53,70,000/- & Rs.5,85,76,000/- for AYs 2015-16 & 2016-17 respectively under Rule 8D of Income-tax Rules, 1963 being 0.5% of the average value of investment.
Upon assessee’s appeal, ld. CIT (A) restricted the addition to Rs.8,30,861/- & Rs.20,15,030/- for AYs 2015-16 & 2016-17 respectively. For the sake of brevity, the findings of ld. CIT (A) for AY 2015-16 is reproduced as under :-
“4.2. Ground No.2 & 3 are pertaining to disallowance of Rs. 5,85,70,000/- u/s 14A r.w.r. 8D being 0.5% of average value of investment reflected in the balance sheet. The Ld. AR before the AO submitted that the entire investment pertained to investment in shares of subsidiary/Associate companies towards promoter contribution. Further no dividend income was received and hence no disallowance is called for. Similar submission has been furnished during the course of appellate proceedings also. Alternatively, it has been submitted by the Ld. AR that the exempt income claimed was Rs.8,30,861/- only and hence the disallowance u/s 14A cannot exceed the amount of exempt income in view of various decisions relied upon in the written submission. I find that the AO has not pointed out amount of income claimed as exempt. Moreover, in view of various decisions relied upon the Ld. AR and particularly in the case of Joint Investment Pvt. Ltd. Vs CIT (2015) 372 ITR 694 (Del) which is binding on me being of Hon'ble jurisdictional High Court, I also hold that the disallowance u/s 14A cannot exceed the amount of exempt income. Accordingly the AO is directed to restrict the disallowance u/s 14A r.w.r. 8D to the extent of Rs.8,30,861/- subject to verification and allow consequential relief. Thus Ground No.2 & 3 are partly allowed.
Against the above order, Revenue has filed appeals before us. We have heard the ld. DR for the Revenue and perused the records. None appeared on behalf of the assessee despite issuance of notice. purview of section 14A. However, the proposition of restricting the disallowance to the extent of exempt income earned holds good and it has the mandate of Hon’ble Delhi High Court, by the latest decision in the case of Pr. CIT vs. Era Infrastructure (India) Ltd. vide order dated 20.07.2022 in ITA No.204/2022. 7. In this view of the matter, we remit the issue to the file of AO. The AO shall factually examine dividend income earned and limit the disallowance accordingly. 8. In the result, both the appeals filed by the Revenue are allowed for statistical purposes. Order pronounced in the open court on this 21st day of July, 2022.