TWINKLE ENVIRO TECH P.LTD,MUMBAI vs. ASST CIT CEN CIR 2(4), MUMBAI

The ground raised is that learned CIT(A) erred in confirming the addition on account of disallowance of Rs. 1,05,58,432/- under section 14A.

Brief facts of the case are that assessee is a company engaged in the business of selling holiday plans. During the course of assessment proceedings, the assessing officer noted that assessee has income of Rs. 23,94,788 which was claimed exempt. The assessee officer further noted that assessee has paid an amount of Rs. 2,33,56,424/- as interest on loans. He further noted that assessee company on its balance sheet has shown total investment at Rs.1,27,69,08,049/-. Assessee was asked to explain about the disallowance under section 14A. The assessee stated that assessee has not made the investment with the purpose of earning income. That the same was done to acquire strategic stake in the companies. However the assessing officer was not convinced, he applied Rule 8D and came to the total disallowance of Rs. 1,05,58,432/-.

Upon assessee's appeal in this regard learned CIT(appeals) confirmed the aforesaid disallowance of Rs. 1,05,58,432/-.

Against the above order the assessee has filed appeal before us. We have heard the learned departmental representative. None appeared on behalf of the assessee despite notice. Upon careful consideration we note that the assessee has earned exempt income of Rs. 23,94,788/-. The reasoning of the assessee for not disallowing any sum under section 14A is that the said investment was made to acquire strategic investment. We find that the aforesaid reasoning is no more sustainable in view of the Hon'ble Supreme Court decision in the case of Maxopp Investment Ltd. (CIVIL APPEAL NOS. 104-109 OF 2015). However, we note that the assessee has earned exempt income of Rs. 23,94,788/-. However, the total disallowance of Rs. 1,05,58,432/-. We note that Hon'ble Jurisdictional High Court in the case of Delite Enterprises (Appeal No. 110 of 2009 dated 26.2.2009) has agreed with the Delhi High Court decision in the Cheminvest Ltd.(ITA 749/2014) that disallowance u/s. 14A cannot exceed the exempt income. Hence, we direct that the disallowance in this case should not exceed the exempt income earned.

Accordingly, this appeal filed by the assessee stands partly allowed.