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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI S. RIFAUR RAHMAN
The captioned appeal has been filed by the assessee challenging the order dated 19th June 2019, passed by the learned Commissioner (Appeals)–9, Mumbai, for the assessment year 2015–16.
The issue under consideration before us is, whether the disallowance under section 14A of the Income Tax Act, 1961 (for short "the Act") can exceed the exempt income.
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Facts in brief:– The assessee, for the year under consideration, filed its e–return of income on 30th September 2015, declaring total income of ` 5,27,36,480. Subsequently, the exempt income was revised to ` 8,550, which was received by the assessee in the form of dividend income received from investment in equity shares / mutual fund. The assessee, at the time of filing return of income under section 139(1) of the Act, voluntary disallowed an amount of ` 17,13,090 under section 14A of the Act being 0.5% of the average investments under rule 8D2(iii) of the Income Tax Rules, 1962. The Assessing Officer considering the return of income filed by the assessee and accepted the declared amount of income at ` 5,27,36,480.
The assessee carried the matter before the first appellate authority, wherein before the learned Commissioner (Appeals), the assessee submitted that the disallowance of ` 17,13,090, was made under section 14A of the Act. The dividend income earned was only to the extent of ` 8,550 and, therefore, the disallowance under section 14A of the Act should be restricted to the extent of exempt income earned at ` 8,550, and the voluntary disallowance of ` 17,13,090, made under section 14A of the Act at the time of filing of return of income should be ignored. In support of this contention, the assessee relied upon various decisions. The learned Commissioner (Appeals) considering the submissions of the assessee and the case laws relied
3 Shah Mehta Holdings Pvt. Ltd. upon, restored the disallowance of ` 17,13,090, made under section 14A of the Act, as offered by the assessee in the computation filed at the time of filing its return of income. For the sake of clarity, the relevant portion of the observations of the learned Commissioner (Appeals) are reproduced below:–
“4.4.1 In the instant case, it is seen that the appellant has voluntarily disallowed an amount of Rs.17,13090/- u/s 14A towards earning of exempt income. The appellant while filing the return of income u/s 139(1) of the Act had come to a conclusion that the expenditure of Rs.17,13,090/- was attributable towards earning of exempt income. The appellant was free to adopt any method in order to arrive at it correct apportionment of expenses, No method was binding on the appellant. The requirement as per the law was to not to debit expenses related to exempt income. The AO has powers to enhance the amount of disallowance claimed by the appellant as per the provision of section 14A(2) of the Act, if the AO is satisfied that the disallowance is not correct. However, the AO or for that matter the appellate authority would not be having any mandate as such to go below the amount of disallowance which the assessee on it's own has considered to be related to exempt income. 4.4.2 In the case underhand, the issue is not of allowing a claim which was remained to be made inadvertently while filing the return of income. This is the case in which the appellant on its own has come to a conclusion that certain amount of expenditure was related to exempt income. Now the appellant wants to revise the disallowance on the basis of various judicial pronouncement of courts. The decisions quoted and relied upon by the appellant are considered. In all these decisions the disallowance was made by the AO by invoking provisions of section 14A(2) of the Act. However, in the case of the appellant, the disallowance was made under section 14A(1) of the Act. The provisions of section 14A(1) make it mandatory for the appellant to not to deduct any expenditure incurred by the appellant in relation to income which does not form part of the total income. The Income Tax Act has not prescribed any mechanism for determining such expenditure. The courts in the decisions referred to by the appellant have also riot made any comment or interpretation in this regard. The ratios of the decisions relied upon by the appellant are therefore not applicable to the facts of the case.
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4.4.3 The appellant is trying to revise it's own voluntary judgement regarding the expenditure related to exempt income by relying on decisions which are not applicable to the facts of it's case. Thus, the contention of the appellant to revise the expenses disallowed by the appellant on it's own is not tenable. 4.4.4 Therefore, in view of the above discussion and conclusions the disallowance u/s 14A is restored to Rs.17,13,090/- as offered by the appellant in the computation filed at the time of filing it's return of income.”
The assessee being aggrieved with the aforesaid order of the learned Commissioner (Appeals), is in further appeal before the Tribunal.
Before us, the leaned Counsel for the assessee reiterated the submissions made before the authorities below submitted that the assessee at the time of filing return of income under section 139(1) of the Act, had made disallowance of ` 17,13,090, voluntarily. The dividend income earned by the assessee was only ` 8,550, therefore, the impugned disallowance under section 14A of the Act should be restricted to the extent of exempt income earned at ` 8,550.
The learned Departmental Representative supported the order of the authorities below.
Considered the rival submissions and perused the material on record. The undisputed facts, as borne out from the order of the Revenue authorities clearly indicate that the assessee, during the 5 Shah Mehta Holdings Pvt. Ltd.
impugned assessment year, has indeed earned dividend income to the extent of ` 8,550. We find that now it is a well settled principles of law that the disallowance computed under section 14A of the Act r/w rule 8D of the Rules shall not exceed the exempt income earned by the assessee. This principle of law is in conformity with the decision of the Hon’ble Delhi High Court in Cheminvest Ltd. v/s CIT, [2015] 378 ITR 33 (Del.), wherein it has been held that disallowance of expenditure under section 14A of the Act shall not exceed exempt income earned for the year under consideration. However, in the given case, the assessee has disallowed suo–motu by following the provisions of Rule 8D(2)((iii) i.e., 0.5% on average investment. It is settled law that the administrative expenses of 0.5% under Rule–8D(2)(iii) should be on the investment which earned the exempt income. Therefore, we direct the Assessing Officer to calculate the disallowance under rule 8D(2)(iii) as per the above direction and restrict the disallowance to the above amount or exempt income whichever is less. Accordingly, we set aside the impugned order of the learned Commissioner (Appeals) and direct the Assessing Officer to restrict the disallowance computed under section 14A r/w Rule 8D of Rules, as per the above direction. Consequently, the grounds of appeal raised by the assessee are allowed.
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