THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. M/S ADANI PROPERTIES PVT. LTD.

Draft amendment is allowed. The same shall be carried out at the earliest.

This tax appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Ahmedabad dated 6th January, 2020 in the ITA No.2617/Ahd/2017 for the A.Y.2013-14. 3. The Revenue has proposed the following question for the consideration of this Court:- “(A) Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance made on account of interest expenditure under section 14A r.w. Rule 8D(2)(ii) by holding that disallowance under section 14A r.w. Rule 8D cannot exceed disallowance made in the return of income?”

It appears from the materials on record that in the course of the assessment proceedings, the Assessing Officer noticed that the assessee-Company, during the year under consideration, had earned exempt income of Rs.11,83,96,894/- and there were huge investments, the part of those, were not forming the part of the total income. In such circumstances, the assessee was called upon to submit the details of the expenses incurred in relation to the exempt income suo motu disallowed. In response thereto, the assessee submitted that the company had suo motu disallowed a sum of Rs.29,00,00,550/- while computing the total income. However, the Assessing Officer found that the working of the aforesaid suo motu disallowance was arbitrary and devoid of any logic as the assessee, despite being called upon, failed to furnish any convincing explanation as to how it had arrived at the figure of the expenses incurred in relation to the income not forming part of the total income. The Assessing Officer proceeded for computing the disallowance under Section 14A of the Act in tune with the mechanism provided in Rule 8D which worked out at Rs.52,65,01,883/-. The same resulted into a further disallowance of Rs.23,29,20,266/- being the difference of the two.

Being aggrieved, the assessee preferred appeal before the CIT (A). The CIT(A) restricted the disallowance to the extent of Rs.1,38,04,106/- and deleted the rest, i.e., 21,91,16,160/-.

Being dissatisfied with the decision of the CIT (A), the Revenue as well as the Assessee preferred appeal before the Appellate Tribunal to the extent prejudicial to them. The Tribunal allowed the appeal filed by the assessee while dismissed

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 reported in 99 Taxmann.com 26 wherein the SLP was dismissed involving the identical facts and circumstances.

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. “

Being dissatisfied with the order passed by the Tribunal, the Revenue is here before this Court with the present appeal.

We have heard Mr. Manish R. Bhatt, the learned senior counsel appearing for the Revenue and Mr. S.N. Soparkar, the learned senior counsel appearing for the Assessee.

We do not find any material infirmity or jurisdictional error in the impugned order passed by the Tribunal so as to warrant any interference in this appeal. The question as proposed by the Revenue is no longer res integra in view of the following decisions:- “1) In the case of Commissioner of Income Tax, Vadodara-2 vs. Vision Fintok Limited, Tax Appeal No.486 of 2017 (Gujarat High Court) 2) In the case of Commissioner of Income Tax, Vadodara-2 important. The Tribunal, at Page-143 in Para-6.2, has observed that the amount of disallowance under Section 14A read with Rule 8D of the Rules cannot exceed the amount of disallowance made by the assessee in the return of income. We are of the view that such observations made by the Tribunal should be looked into in the context and the facts available in the present case. The observations should not be construed or understood to mean that the aforesaid disallowance cannot exceed the suo motu disallowance made by the assessee in the return of income. In some cases, applying the formula laid down in Rule 8D, the disallowance may exceed such suo motu disallowance made by the assessee.

With the above clarification, we dismiss this appeal. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) Vahid