SHRIRAM INDUSTRIAL FINANCE (FIRM),CHENNAI vs. DCIT NON CORPORATE CIRCLE 2, CHENNAI

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ITA 2007/CHNY/2018Status: DisposedITAT Chennai24 February 2020AY 2014-155 pages
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What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A should be restricted to the extent of exempt income or the suo moto disallowance made by the assessee, whichever is lower. The Assessing Officer was directed to restrict the disallowance to Rs. 2,91,470/-.

What were the facts?

The assessee claimed exempt income of Rs. 47,500/- and suo moto disallowed Rs. 2,91,470/-. The Assessing Officer, however, disallowed Rs. 11,08,826/- under Section 14A read with Rule 8D(2)(ii) and (iii), considering the investment in shares. The CIT(A) confirmed this disallowance.

What were the issues?

Whether the disallowance under Section 14A can exceed the exempt income or the suo moto disallowance made by the assessee. The applicability of Rule 8D in computing the disallowance.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI MAHAVIR SINGH & SHRI M. BALAGANESH

Hearing: 24.02.2020

आदेश / O R D E R

PER SHRI MAHAVIR SINGH, VICE PRESIDENT:

1.

This appeal by the assessee is arising out of the order of CIT(A)- 2, Chennai, in ITA No.212/2016-17/A.Y.2014-15/CIT(A)-2 dated 18.04.2018. The Assessment was framed by DCIT, Non-Corporate Circle-2, Chennai for the relevant A.Y. 2014-15 vide order dated 14.07.2016 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

(A.Y 2014-15) M/s. Shriram Industrial Finance (Firm) :- 2 -: 2. Briefly stated facts are that the assessee is engaged in the business of Finance. The Assessing Officer during the course of assessment proceedings noticed that the assessee has earned exempt income of Rs. 47,500/- and the assessee has claimed this as exempt. He is also noted that the assessee’s own funds invested is only to the extent of Rs. 2,000/-, whereas investment in shares is at Rs. 32,91,108/-. The Assessing Officer required the assessee to explain as to why disallowance of interest expenses and administrative expenses u/s. 14A of the Act r/w Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Rules to be invoked. The assessee claimed that the expenditure is suo moto disallowed for a sum of Rs. 2,91,470/- before the Assessing Officer but, according to Assessing Officer, the assessee’s investment in shares at Rs. 32,91,108/- and hence the same is to be computed for disallowance of interest. Hence, the Assessing Officer invoking Rule 8D(2)(ii) of the Rules made disallowance of interest amounting to Rs. 11,08,826/- as against the disallowance made assessee at Rs. 2,91,470/-. The Assessing Officer thereby made net disallowance of Rs. 8,17,356/-. The CIT(A) also confirmed the action of the Assessing Officer.

3.

Aggrieved, the assessee came in appeal before the Tribunal.

Before the Tribunal.

(A.Y 2014-15) M/s. Shriram Industrial Finance (Firm) :- 3 -:

4. The assessee raised only one issue that the CIT(A) erred in confirming the disallowance made by Assessing Officer by invoking the provisions of s. 14A of the Act r/w Rule 8D(2)(ii) of the Rules amounting to Rs. 8,17,356/-. The assessee raised the following three effective grounds No.2 to 4 which reads as under:

“2. The CIT(A) erred in confirming the disallowance made by the Assessing Officer u/s. 14A r/w Rule 8D(2)(i) of Rs. 8,17,356/-.

3. The CIT(A) erred in not appreciating the fact that the appellant has already disallowed Rs. 2,91,470/- u/s. 14A (Rs. 2,70,300/- under Rule 8D(2)(ii) and Rs. 21,170/- under Rule 8D(2)(iii).

4.

The CIT(A) erred in overlooking the fact that the disallowance made by the Assessing Officer was more than the dividend income. In this connection the appellant relies on the Delhi High Court decision in the case of Joint Investments Pvt. Ltd. vs. CIT (372 ITR 694).”

5.

We have heard the rival contentions and gone through the facts and circumstances of the case. The admitted facts are that the assessee has earned exempt income of Rs. 47,500/- and claimed the same as exempt. The assessee suo moto disallowed a sum of Rs. 2,70,300/- under Rule 8D(2)(ii) of the Rules and a sum of Rs. 21,170/- under Rule 8D(2)(iii) of the Rules thereby making total disallowance at Rs. 2,91,470/-. The Ld. Counsel for the assessee before us stated that now the issue is squarely covered by the decision of Hon’ble Apex Court in the case of PCIT vs. State Bank of Patiala [2018] 99 taxmann.com 286 (SC), wherein SLP was dismissed and the decision

(A.Y 2014-15) M/s. Shriram Industrial Finance (Firm) :- 4 -: of Hon’ble Punjab and Haryana in the case of PCIT vs. State Bank of Patiala [2018] 99 taxmann.com 285, wherein it is held as under:

“4. It is not disputed by the learned counsel for the appellant- revenue that the issue involved in the present case stands concluded against the revenue in of 2016, Pr. CIT v. State Bank of Patiala [2017] 393 ITR 476/88 taxmann.com 667 (Punj. & Har.) decided on 27.02.2017 wherein after considering the relevant provision and the case law on the point, it was recorded as under:- “After hearing learned counsel for the parties, we notice that the issue on merits has been decided in favour of the assessee in State Bank of Patiala’s case (supra) [(2017) 78 taxman.com 3]. The amount of disallowance under section 14A was restricted to the amount of exempt income only and not at a higher figure. Once that was so, we do not consider it appropriate to discuss the scope of section 263 of the Act as the same has been rendered academic in view of the issue being answered in favour of the assessee on merits. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed.” Similar decision was taken by this Court in ITA No.193 of 2017, Pr. CIT v. State Bank of Patiala decided on 22.05.2017.”

6.

When this was confronted by the ld. Sr. DR Mrs. Vijayaprabha, JCIT she stated that the Assessing Officer as well as CIT(A) has rightly computed the disallowance in view of the formula given under Rule 8D(2)(iii) and thereby no fault can be found with the orders of the lower authorities. We noted that the assessee has earned exempt income to the tune of Rs. 47,500/- but, as the Ld. Counsel for the assessee fairly agreed that suo moto disallowance made by Assessing Officer at Rs. 2,91,470/- can be considered for disallowance and for this he has no objection. In view of the above, we direct the Assessing Officer to restrict the disallowance to the extent of Rs. 2,91,470/- as (A.Y 2014-15) M/s. Shriram Industrial Finance (Firm) :- 5 -: against the disallowance computed by the Assessing Officer at Rs.

11,08,826/-. Hence, this appeal of the assessee is allowed.

7.

In the result, the appeal of the assessee is allowed.

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