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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R
PER G. MANJUNATHA, AM:
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-3, Chennai, dated 01.02.2019 and pertains to assessment year 2015-16.
The brief facts of the case are that the assessee company is engaged in the business of “Investments”. The assessee has filed its return of income for the AY 2015-16 on 30.09.2015, declaring total income of Rs.1,49,07,530/- and the same has been subsequently revised on 22.11.2016 admitting an income of Rs.1,58,68,360/-. During the FY relevant to AY 2015-16, the assessee had earned dividend income of Rs.12,51,30,863/- and claimed the same as exemption u/s.10(34) of the M/s.Polaris Banyan Holding Pvt. Ltd. :: 2 ::
Act. The assessee had also made a suo moto disallowance of expenses u/s.14A r.w.r.8D of Income Tax Rules, 1962 at Rs.33,34,038/-. The AO did not accept suo moto disallowance computed by the assessee and invoked Rule 8D of IT Rules, and computed total disallowance of Rs.1,76,33,003/- and made addition of Rs.1,42,98,965/- after reducing suo moto disallowance of Rs.33,34,038/- made by the assessee.
Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee submitted the disallowance computed u/s.14A r.w.r.8D of IT Rules, is in excess of total expenditure debited into P & L A/c and thus, argued that disallowance computed u/s.14A of the Act, in any event, cannot exceed expenditure incurred by the assessee for the relevant assessment year. The Ld.CIT(A) after considering relevant submissions of the assessee, rejected the arguments of the assessee and sustained the additions made by the AO towards disallowance u/s.14A r.w.r.8D of IT Rules. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee submitted that the assessee has debited total expenditure into P & L A/c amounting to Rs.3,32,14,864/- and out of which, assessee itself has disallowed donation paid amounting to Rs.2,15,01,908/- and the AO has disallowed provision for diminution in value of investments amounting to Rs.6,30,000/-. If you exclude above two expenses, the balance expenses debited to P & L A/c was at M/s.Polaris Banyan Holding Pvt. Ltd. :: 3 ::
Rs.1,10,82,956/-, which includes depreciation on assets amounting to Rs.13,10,851/-. Since, depreciation is not an expenditure but only allowance, the same cannot be considered to be incurred for earning exempt income. If you exclude depreciation allowance, expenses debited to P & L A/c was at Rs.97,72,105/-. As against this, the AO has disallowed total expenses u/s.14A r.w.r.8D of IT Rules, of Rs.1,76,33,003/- and this cannot exceed total expenditure incurred by the assessee. Therefore, disallowance computed by the AO may be restricted to total expenditure incurred by the assessee.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that there is no scope for the AO to deviate from prescribed method provided for computation of disallowance u/s.14A of the Act and thus, there is no reason to give benefit to the assessee.
We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. It is an admitted fact that the assessee has incurred total expenditure of Rs.3,32,14,864/-.
It is also an admitted fact that the assessee itself as disallowed donation paid amounting to Rs.2,15,01,908/-. Further, during the course of assessment proceedings, the AO has disallowed provision for diminution value of investment amounting to Rs.6,30,000/-. If you exclude above two items, then the total expenditure debited into P & L A/c comes to Rs.1,10,82,956/- which includes a sum of Rs.13,10,851/- towards
M/s.Polaris Banyan Holding Pvt. Ltd. :: 4 :: depreciation allowance on fixed assets. If you exclude depreciation allowance, then the total expenditure debited to P & L A/c works out to Rs.97,72,105/-, as against this, the AO has disallowed expenditure u/s.14A r.w.r.8D of IT Rules at Rs.1,76,33,003/-, which is in excess of total expenditure incurred by the assessee for the relevant assessment year. In our considered view, disallowance contemplated u/s.14A of the Act, cannot in any event exceed total expenditure debited into P & L A/c. Therefore, we are of the considered view that the AO is erred in computing disallowance u/s.14A of the Act, on notional basis, even though, the assessee has not incurred that much expenditure for the relevant assessment year. Hence, we direct the AO to restrict disallowance u/s.14A r.w.r.8D of IT Rules, to the extent of total expenditure debited into P & L A/c for the relevant assessment year amounting to Rs.97,72,105/-.