RAMA CHANDIRAMANI,CHENNAI vs. ITO, CORPORATE WARD - 5 (4), CHENNAI

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ITA 55/CHNY/2020Status: DisposedITAT Chennai21 November 2022AY 2015-163 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal directed the AO to consider only those investments that yielded or had the potential to yield exempt income for disallowance computation. The disallowance cannot exceed the total expenditure debited in the Profit & Loss Account.

What were the facts?

The assessee earned exempt income from mutual funds and dividends. The Assessing Officer (AO) made a disallowance under Section 14A read with Rule 8D, which was confirmed by the CIT(A). The assessee argued that the disallowance should not exceed the actual expenditure debited in the Profit & Loss account.

What were the issues?

The primary issue was the correct computation of disallowance under Section 14A, specifically whether it should be limited by the actual expenditure incurred and if only investments yielding exempt income should be considered.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2015-16 arises out of the order of learned Commissioner of Income Tax (Appeals)-3, Chennai [CIT(A)] dated 07-11-2019 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.153C r.w.s. 143(3) of the Act on 19-11-2018. The sole issue that fall for our consideration is disallowance u/s 14A. 2. At the time of hearing, none appeared for the assessee. Accordingly, the appeal was proceeded with the able assistance of Ld.

1.

2 - CIT-DR who pleaded for dismissal of the appeal. Having considered material on record, the appeal is disposed-off as under.

3.

During assessment proceedings, it transpired that the assessee earned income from mutual fund and dividend income which were exempt from tax. However, no disallowance u/s 14A was made on the ground that no expenses could be attributable to such activity. However, Ld. AO computed disallowance of Rs.16.07 Lacs u/r 8D(2) which include interest expense disallowance u/r 8D(2)(ii) for Rs.0.21 Lacs and indirect expense disallowance u/r 8D(2)(iii) for Rs.15.85 Lacs. The argument that completed assessment could be interfered only to the extent of incriminating material was rejected on the ground that seized document led to the fact that the assessee was in receipt of exempt income. However, in the remand report, the correct amount of disallowance as reported by Ld. AO was Rs.14.62 Lacs. However, rejecting all the pleas of the assessee, Ld. CIT(A) confirmed the impugned disallowance of Rs.16.07 Lacs against which the assessee is in further appeal before us.

4.

Upon perusal of assessee’s submissions dated 03.09.2019 as made before Ld. CIT(A), as placed on record, it could be gathered that considering average of investments from which exempt income is earned or which has the potential of yielding exempt income, the disallowance u/r 8D(2)(iii) would be Rs.7.04 Lacs whereas the total expenditure debited in Profit & Loss Account is only Rs.2.21 Lacs. Therefore, we direct Ld. AO to consider only those investments which have yielded or which have the potential to yield exempt income while computing the disallowance. In any case, disallowance could not exceed expenditure debited in the Profit & Loss Account. The Ld. AO is directed to rework the same. The legal argument would not hold good since the fact of exempt income has been borne out of seized material.

5.

The appeal stands partly allowed in terms of our above order. Order pronounced on 21st November, 2022.

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