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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
O R D E R PER SAKTIJIT DEY, JM Captioned appeal by the revenue and cross objection by the assessee arise out of order dated 07.02.2020 of learned Commissioner of Income Tax (Appeals)-4, Mumbai for the assessment year 2016-17. 2. Grounds raised by the revenue are set out as under:-
CO No. 115/MUM/2020 Assessment Year: 2016-17 1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the disallowance u/s 14A r.w.r. 8D should not exceed the exempt income without appreciating the Board’s Circular No. 5 of 2014 dated 11.02.2014, wherein it was clarified that disallowance u/s 14A is applicable even if there is no exempt income.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the decision of Hon’ble ITAT in the case of Future Corporate Resources Ltd. (in 2015 dated 26.12.2017 without appreciating the fact that investments held in stock-in-trade and the income earned by way of dividend, which is exempt from tax u/s 10(34) of the Act and the applicability of section 14A for appropriation of expenses between taxable and non-taxable incomes and thereby restricting the disallowance to dividend income.”
Whereas, cross objection of the assessee reads as under:-
“1. Hon’ble Commissioner of Income Tax (Appeal)-4, Mumbai [hereinafter referred as CIT(A) ought to have restricted the disallowance u/s 14A of the Act at Rs. 44,250/- being exempt income earned by the assessee as against 22,82,187/-.
As could be seen from the grounds raised
both by the revenue as well as assessee, the issue is common and relates to disallowance made under section 14A of the Income Tax Act, 1961 r.w.r. 8D. Of course, vide letter dated 13.09.2021, the assessee has raised the following additional grounds to the cross objection:
1. The Commissioner of Income Tax (Appeal)-4, Mumbai [hereinafter referred as CIT(A)] ought to have restricted the disallowance u/s 14A of the Act at Rs. 54,625/- considering only those investments on which assessee has actually earned the exempt income as against disallowance of Rs. 5,04,585/- confirmed by the CIT(A).
2. In the alternative and without prejudice to the above, the CIT(A) ought to have restricted the disallowance u/s 14A of the Act at Rs. CO No. 115/MUM/2020 Assessment Year: 2016-17 1,74,750/- being exempt income earned by the assessee as against disallowance of Rs. 5,04,585/- confirmed by the CIT(A).
3. The CIT(A) ought to have allowed the deduction of education cess from business income of the assessee.” Since, the additional grounds can be decided without investigating into fresh facts, we admit them for adjudication. 5. Material facts relevant for dealing with issue relating to disallowance under section 14A of the Act r.w.r. 8D are, the assessee is a resident company and is engaged in the business of merchant banking, financial advisory services, syndication of finance, arranging credit facilities from banks and financial institutions and trading in PSU/SLU Bonds. In the year under consideration, the assessee had earned exempt income by way of dividend amounting to Rs.1,74,715/-. Suo motu, the assessee disallowed an amount of Rs. 5,04,585/- under section 14A r.w.r. 8D, being expenditure attributable to the exempt income. The assessing officer (AO) on verifying assessee’s computation, however, was of the view that the disallowance made is not in accordance with rule 8D. Accordingly, he proceeded to compute disallowance under rule 8D at Rs. 10,23,42,493/-. The assessee having already disallowed an amount of Rs. 5,04,585/-, he made net disallowance of Rs. 10,18,37,908/-. Assessee contested the aforesaid disallowance before learned Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and material on record and in the light of the decision cited before him, learned Commissioner (Appeals) granted substantial relief to the assessee by restricting the disallowance to the extent of suo motu disallowance made by the assesse.