DINESH JAYANTILAL JAIN,MUMBAI vs. ITO 21(1)(3), MUMBAI

The only grievance of the assessee relates to disallowance of the expenses made U/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short, the Rules).

Rival contentions have been heard and record perused. Facts in brief are that the assessee was earning income from business and Dinesh Jayantilal Jain Vs ITO capital gains. During the course of scrutiny assessment, the A.O. found that the assessee has earned dividend income of Rs. 61,427/-, which was claimed as exempt. He invoked provisions of Section 14A of the Act and computed the disallowance in respect of interest expenditure under Rule 8D of the Rules, accordingly, disallowance of Rs. 6,57,235/- was made. By the impugned order, the ld. CIT(A) confirmed the disallowance, against which the assessee is in further appeal before the ITAT.

We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that during the year under consideration, the assessee has dividend income of Rs. 61,427/- which was claimed as exempt. The A.O. found that the assessee has incurred interest expenditure which was claimed against exempt income. Accordingly, he invoked provisions of Section 14A of the Act and computed proportionate disallowance under Rule 8D of the Rules amounting to Rs. 6,57,235/-. It is now well settled by various judicial pronouncements that the disallowance U/s 14A of the Act cannot exceed the exempt income. The Hon’ble Punjab & Haryana High Court in the case of PCIT Vs State Bank of Patiala (2017) 393 ITR 476 (P&H) and the Hon’ble Delhi High Court in the case of PCIT Vs Caraf Builders & Constructions (P) Ltd. (2019) 414 ITR 122 (Del) have held that the disallowance U/s 14A of the Act cannot exceed the exempt

In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on 12th December, 2019.