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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
ORDER PER O.P. KANT, AM:
This appeal by the assessee is directed against order dated 10/08/2017 passed by the Ld. Commissioner of Income-tax (Appeals)-35, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 raising following grounds: 1 (i) On the facts and circumstances of the case and in law, the learned CIT(A) erred in not restricting the disallowable amount u/s 14A at the revised claim of Rs.98,02,608/- not considered by the Assessing Officer during assessment proceedings, as against the original amount of Rs. 1,31,45,543/- shown in the return of income.
(ii) That the learned CIT(A) erred in not appreciating the justification provided by the appellant for the actual disallowable amount u/s 14A at Rs.98,02,608/- and proceeded to reject the claim without specifying any reasons. (iii) Without prejudice to the above grounds, the learned CIT(A) erred in not restricting the disallowance u/s 14A to the exempt income claimed at Rs. 1,11,49,211/-.
That the appellant reserves to itself, the right to add, alter, amend, substitute and/or withdraw any Ground(s) of Appeal on or before the date of hearing.
2. Briefly stated facts of the case are that the assessee derives income mainly from royalty, financing and investment in securities and mutual fund units. For the year under consideration, the assessee filed return of income on 27/09/2013 declaring total income of ₹ 19,68,43,670/-. The return of income filed by the assessee was selected for scrutiny and statutory notices issued under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. The assessment under section 143(3) of the Act was passed on 03/03/2016 after making certain disallowances. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee. Aggrieved, with the additions sustained, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above.
Before us, both the parties appeared through Videoconferencing facility. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. 4. In the case, in the return of income filed, the assessee computed disallowance under section 14A of the Act at ₹1,31,45,543/- in accordance with the methodology prescribed in Rule 8D of the Income-tax Rules, 1962 (in short ‘the Rules’). However, during the course of assessment proceeding, the assessee revised its claim of the disallowance to ₹ 98,02,608/-. According to the assessee, disallowance under Rule 8D(2)(iii) of the Rules, should be restricted to the amount of expenditure related to exempt income claimed in the profit and loss account. This revised claim of disallowance under section 14A was not accepted by the Assessing Officer and he followed the computation strictly in accordance with Rule 8D of the Rules. The Ld. CIT(A) also held that disallowance has been made correctly by the Assessing Officer in accordance with section 14A read with Rule 8D of the Rules. Before us, the learned counsel of the assessee has pleaded that in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investment Private Limited Vs CIT, reported in 372 ITR 694 (Delhi), the disallowance under section 14A of the Act cannot exceed the exempted income earned. Accordingly, he submitted that disallowance might be restricted to the exempted income of ₹ 1,11,49,211/- earned by the assessee. The relevant finding of the Hon’ble High Court in the case of Joint Investment Private Limited (supra) is reproduced as under: “9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing Rs.2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.”
Respectfully, following the finding of the Hon’ble Delhi High Court in the case of Joint Investment Private Limited (supra), we restrict the disallowance to the extent of the exempted income of ₹ 1,11,49,211/-. The ground of appeal
is, accordingly, partly allowed.
6. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 16th December, 2020.