KOTAK SECURITIES LTD,MUMBAI vs. ADDL CIT RANGE 4(3), MUMBAI

आअसं. 1126/मुं/2020 (िन.व.2009-10) (A.Y.2009-10) 2. Sh. Farook Irani appearing on behalf of the assessee submitted that the short ground in the present appeal is against disallowance made under section 14A read with Rule 8D of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. The ld. counsel for the assessee submitted that during the period relevant to AY under appeal, the assessee has earned dividend income exempt from tax Rs. 20,14,878/-. The assessee suo-moto made disallowance of Rs. 22,43,198/- for earning exempt income. The AO re-computed disallowance of Rs. 2,18,76,510/- under section 14A read with Rule 8D of the Act. Aggrieved by disallowance computed by the AO, the assessee carried the issue in appeal before the CIT(A). The CIT(A) directed the AO to re-work disallowance under section 14A read with Rule 8D of the Act by considering average value of only those investments that have yielded exempt income during the relevant period. Thus, part relief was allowed by the First Appellate Authority. The ld. counsel submitted that the assessee is now seeking to restrict disallowance under section 14A read with Rule 8D to the extent exempt income earned.

Sh. Ashish Heliwal representing the Department vehemently defended the impugned order. The ld. DR submitted that the CIT(A) has granted relief to the assessee in accordance with settled law. The assessee has raised afresh plea before the Tribunal in restricting disallowance to the extent of exempt income earned.

Both sides head, orders of the authorities below examined. It is an undisputed fact that the assessee has earned income exempt from tax to the tune of Rs. 20,14,878/- during the period relevant to AY under appeal. The assessee has made suo-moto disallowance of Rs. 22,43,198/-. The disallowance आअसं. 1126/मुं/2020 (िन.व.2009-10) (A.Y.2009-10) made by the AO has been rejected by the AO and has thereafter re-worked disallowance under section 14A read with Rule 8D enhancing the disallowance by Rs. 1,96,33,312/-.

It is no more res integra that disallowance under section 14A read with Rule 8D cannot exceed the exempt income earned by the assessee [Re: PCIT Vs. State Bank of Patiala, 99 taxmann.com 286 (SC)]. Thus, in view of the well- settled law, the AO is directed to restrict disallowance under section 14A to the extent exempt income earned by the assessee during the relevant period.

Ground No.2 raised by the assessee in appeal is thus, allowed.

The ld. counsel for the assessee stated at Bar that he is not pressing ground no.1. In view of the statement made by ld. counsel for the assessee, ground no.1 is dismissed as not pressed.

In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on Monday, the 04th day of October, 2021.