DECENT INDUSTRIES PRIVATE LIMITED,BHOPAL vs. INCOME TAX OFFICER-1(2), BHOPAL

PDF · subscribers
ITA 292/IND/2024Status: DisposedITAT Indore21 February 2025AY 2015-164 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance made by the AO under Section 14A at Rs. 1,40,28,010/- needed to be restricted. The Tribunal noted that Rule 8D of the Income-tax Rules, 1962, was substituted by the IT (Fourteenth Amendment) Rule, 2016, w.e.f. 02.06.2016, which introduced a proviso stating that the amount referred to in clauses (i) and (ii) of Rule 8D shall not exceed the total expenditure claimed by the assessee. The Tribunal considered this proviso to be curative in nature and applicable retrospectively to AY 2015-16. Therefore, the disallowance could not exceed the total expenditure of Rs. 4,47,278/-. The Tribunal directed the AO to modify the assessment order and restrict the disallowance to Rs. 4,47,278/-, which would include the suo motu disallowance of Rs. 4,01,500/- made by the assessee. The excess disallowance was to be deleted. The issue regarding the Rs. 41,293/- expenditure was implicitly addressed by capping the total disallowance to Rs. 4,47,278/-, which encompasses all expenses.

What were the facts?

The assessee, M/s. Decent Industries Private Ltd, filed its return of income for Assessment Year 2015-16 declaring Nil income. The Assessing Officer (AO) completed the assessment under Section 143(3) of the Income-tax Act, 1961, making a disallowance of Rs. 1,40,28,010/- under Section 14A on account of expenses incurred for earning exempt dividend income. The assessee had credited Rs. 99,65,424/- as dividend income and debited total expenses of Rs. 4,47,278/- in its Profit & Loss account. The assessee had already made a suo motu disallowance of Rs. 4,01,500/- while filing its return. The Commissioner of Income-Tax (Appeals) - NFAC, Delhi, confirmed the AO's action. The assessee is aggrieved by this order and has filed an appeal before the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether on the facts and circumstances of the case, the learned CIT(A) was justified in confirming the action of the AO for disallowing expenses under Section 14A, worked out at Rs. 1,40,28,010/-, which exceeded the total expenses claimed by the assessee (Rs. 4,47,278/-) and the suo motu disallowance made by the assessee (Rs. 4,01,500/-). - Assessee's contention: The disallowance made under Section 14A by the AO and confirmed by the CIT(A) is excessive and unreasonable as it exceeds the total expenses incurred and the amount already disallowed by the assessee. The assessee relied on the fact that it had already disallowed Rs. 4,01,500/- out of total expenses of Rs. 4,47,278/-, leaving only Rs. 41,293/- in dispute. - Revenue's contention: Not recorded in the judgment. 2. Whether on the facts and circumstances of the case, the learned CIT(A) was justified in confirming the action of the AO by not allowing the expenditure of Rs. 41,293/-, which had nothing to do with exempt income but was incurred for legal compliances. - Assessee's contention: The remaining expenditure of Rs. 41,293/- was incurred for legal compliances and not for earning exempt income, and therefore, should not be disallowed under Section 14A. - Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI B.M. BIYANI & SHRI DINESH MOHAN SINHA

For Appellant: Shri Navin Gupta & Ms. Shweta Gupta, AR’s
For Respondent: Shri Ram Kumar Yadav, CIT-DR
Hearing: 03.02.2025Pronounced: 21.02.2025

आदेश/ O R D E R

Per B.M. Biyani, A.M.:

1.

Feeling aggrieved by order of first appeal dated 29.02.2024 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 27.12.2017 passed by learned ITO-1(2), Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2015-16, the assessee has filed this appeal on following grounds mentioned in Form No. 36:

Decent Industries Priavte Ltd, AY 2015-16 “1. Whether on the fact and circumstances of the case, the learned CIT (Appeals) was justified confirming the action of AO for disallowing the expenses under section 14A, worked out @0.5% of average value of investment of the appellant to the tune of Rs. 1,40,28,010/-, irrespective of the fact that the total expenses which has been claimed was only Rs.4,47,278/ of which assessee has already disallowed Rs. 4,01,500/- while filing its return of Income and claimed just only Rs. 41,293/-.

2.

Whether on the fact and circumstances of the case, the learned CIT (Appeals) was justified by confirming the action of AO by not allowing the expenditure of Rs. 41,293/- to the company, which nothing to do with the exempt income but had to incurred by the company for its legal compliances.

3.

The assessee craves to amend, add, alter or delete any of the ground of appeal

on or before the date appeal is finally heard for disposal”.

2. The background facts leading to present appeal are such that the assessee-company filed its return of income of AY 2015-16 declaring a total income of Rs. Nil. The case was then selected under scrutiny and the AO completed assessment u/s 143(3) after making a disallowance of Rs.

1,40,28,010/- u/s 14A on account of expenses incurred for earning exempted income of dividend. Aggrieved, the assessee carried matter in first- appeal and contested the said disallowance before CIT(A) but did not get any success. Now, the assessee has come in next appeal before us assailing the orders of lower-authorities.

3. We have heard learned Representatives of both sides and carefully perused the orders of lower-authorities as also the documents filed in Paper- Book of assessee. We have also examined the audited P&L A/c (Page No. 57 of Paper-Book) and the Computation of Total Income (Page No. 34 of Paper- Book) to which our attention has been drawn by Ld. AR for assessee in the presence of Ld. DR for revenue. In the P&L A/c, the assessee has credited exempted dividend income of Rs. 99,65,424/- and debited total expenses of Page 2 of 4 has already made suo moto disallowance of Rs. 4,01,500/- while calculating taxable income. From these documents, it is very clear that the assessee incurred total expenses of Rs. 4,47,278/- during the previous year out of which made a suo moto disallowance of Rs. 4,01,500/-. While passing assessment-order, the AO has, however, made standard working in terms of Rule 8D at Rs. 1,40,28,010/- and made hefty disallowance of Rs. 1,40,28,010/- u/s 14A which has even exceeded the total amount of expenditure of assessee at Rs. 4,47,278/-. After a careful consideration, we find that the Rule 8D has been substituted by the IT (Fourteenth Amendment) Rule, 2016 w.e.f. 02.06.2016 wherein following proviso is prescribed:

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.

4.

The above proviso, in our considered view, has a logic that when the total expenditure of assessee for the whole year is “X” amount, the disallowance, even if worked out as per standard formulae in Rule 8D, cannot be more than “X”. Needless to mention that the standard formulae prescribed in Rule 8D is basically a notional calculation and hence the proviso has been inserted for capping the notional calculation. Therefore, the aforesaid proviso, even if brought in Rule 8D from 02.06.2016, is curative in nature and must apply retrospectively to AY 2015-16 involved in present appeal. Being so, we are of the view that the disallowance made by Page 3 of 4 aforesaid proviso. The disallowance of Rs. 4,47,278/- shall be inclusive of suo moto disallowance of Rs. 4,01,500/- made by assessee in return of income. We direct the AO to modify assessment-order accordingly and delete excess disallowance.

5.

Resultantly, this appeal is partly allowed.

Order pronounced by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 21/02/2025

More judgments on Section 14A

All 15,875 judgments and leading authorities on Section 14A →

Recent GST High Court judgments

Search GST case law →