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Income Tax Appellate Tribunal, “A”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in Cross Objection No.181/Mum/2019 for A.Y.2012-13 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-53, Mumbai in appeal No.CIT(A)- 53/IT-157/DCCC-5(1)/2015-16 dated 28/04/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2016 by the ld. Dy. Commissioner of Income Tax, Central Circle – 5(1), Mumbai (hereinafter referred to as ld. AO).
The only issue involved in the appeal of the revenue as well as the cross objection of the assessee is as to whether the ld CITA was justified in restricting the disallowance made u/s 14A of the Act by considering only those investments that had yielded exempt income , both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act.
We have heard the rival submissions. We find that the assessee company is engaged in investment and trading in shares, securities and commodities. We find that the assessee had earned dividend income of Rs 3,70,700/- and claimed the same as exempt in the return of income. We find that the ld AO had made disallowance u/s 14A of the Act in the sum of Rs 1,98,93,431/- by applying second and third limb of Rule 8D(2) of the Rules, both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. We find that the ld CITA had directed the ld AO to recomputed the disallowance under second and third limb of Rule 8D(2) of the Rules by considering only those
CONo.181/Mum/2019 M/s. Anand Rathi Advisors P. Ltd. investments which had yielded exempt income to the assessee. Aggrieved, by this direction, the revenue is in appeal before us. We find that the assessee had preferred cross objection before us by raising a ground that the total disallowance u/s 14A of the Act read with Rule 8D of the Rules cannot exceed the exempt income of Rs 3,70,700/-. We find that this issue is well settled that the disallowance u/s 14A of the Act cannot exceed exempt income as per the decision of Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd vs CIT reported in 372 ITR 694 (Del) wherein it was held that :-
“9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 per cent of that sum, i.e., Rs. 52,56,197. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.”
3.1. We find that the assessee had raised a ground in his cross objection that the disallowance u/s.14A of the Act should be restricted to the exempt income. Respectfully following the aforesaid decision of Hon’ble Delhi High Court, we direct the ld. AO to restrict the disallowance u/s.14A of the Act to Rs.3,70,700/- both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act.
CONo.181/Mum/2019 M/s. Anand Rathi Advisors P. Ltd.
In the result, the appeal of the Revenue is dismissed and Cross Objection of the assessee is allowed.
Order pronounced in the open court on this 04/10/2019