M/S. WELLKNOWN TECHNOLOGIES P. LTD.,MUMBAI vs. DY CIT, CC-7(4), MUMBAI

In this appeal, the assessee has raised following ground:–

The brief facts of the case pertaining to the only issue arising in present appeal, as emanating from record are: For the year under consideration, the assessee filed its return of income on 30/09/2015 declaring total income of Rs. 1,97,60,720. The assessee drives his income from business. During the year under consideration, the assessee earned dividend income of Rs. 9,30,964, which was claimed as exempted under section 10 of the Act. During the course of assessment proceedings, the assessee was asked to furnish the details of investments and also to show cause as to why the disallowance under section 14A should not be made in accordance with the provisions of Rule 8D of the Income Tax Rules, 1962 (“the Rules”). In reply, the assessee submitted that the only eligible investment to be considered for working out the disallowance under section 14A of the Act would be the investment held by the assessee company in equity shares. The assessee, without prejudice, also submitted that the disallowance under no circumstance can exceed the total claim for the expenses made. The Assessing Officer vide order dated 26/12/2017 passed under section 143(3) of the Act did not accept the assessee’s submissions and held that it is difficult to accept that an assessee can earn dividend income without incurring any expenses whatsoever including management or administrative expenses as investment decisions are generally taken in a M/s. Wellknown Technologies Pvt. Ltd. ITA No.1342/Mum./2021 planned manner. Accordingly, the Assessing Officer made the disallowance of Rs. 11,15,003 under section 14A read with Rule 8D of the Rules.

The learned CIT(A) vide impugned order dated 10/02/2021 restricted the disallowance made under section 14A of the Act to the quantum of tax– exempt income earned or accrued during the financial year under consideration. Accordingly, the Assessing Officer was directed to restrict the disallowance under section 14A of the Act to Rs. 9,30,964. Being aggrieved, the assessee is in appeal before us.

During the course of hearing, learned Authorised Representative, appearing for the assessee, by referring to financial statement submitted that the assessee incurred no expenditure for earning the exempt income and thus no disallowance can be made under section 14A of the Act.

On the other hand, learned Departmental Representative vehemently relied upon the orders passed by the lower authorities.

We have considered the rival submissions and perused the material available on record. Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does in form part of the total income under this Act. Further, section 10 of the Act deals with income which do not form part of total income of the assessee. As per Section 10(34) of the Act, any income by way of dividends is fully exempt from tax. Further section 14A (2) of the Act, reads as under:

Thus, if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does in form part of the total income, the Assessing Officer can determine the amount of such expenditure after having regard to the accounts of the assessee. In the present case, it is evident from notes forming part of the financial statement that the assessee incurred expenditure of Rs. 53,677 for earning total income of Rs. 2,32,24,633. The details of the said expenditure, at page 13 of paperbook, are as under:

Further, in the present case, it has not been disputed that during the year under consideration, the assessee earned dividend income of Rs. 9,30,964, which was claimed as exempted under section 10 of the Act. The dividend income earned by the assessee during the year under consideration constitutes only 4% of total income of the assessee. However, from the analysis of financial statements for the relevant

In the result, appeal by the assessee is allowed. Order pronounced in the open court on 06/05/2022