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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI RAMIT KOCHAR
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 3, Chennai, dated 30.01.2018 and pertains to assessment year 2014-15.
The only issue arises for consideration in this appeal is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short "the Act").
Ms. R. Anitha, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed ₹3,67,29,348/- under Section 14A read with Rule 8D of Income-tax Rules, 1962. According to the Ld. D.R., the Assessing Officer has followed the mandatory rule prescribed under Rule 8D(2) and computed the disallowance. However, the CIT(Appeals) allowed the claim of the assessee restricting the disallowance to the extent of exempted income / dividend earned by the assessee to the extent of ₹16,70,729/- on the basis of the decision of this Bench of the Tribunal in M/s Rayala Corporation Pvt. Ltd. According to the Ld. D.R., this decision was not accepted by the Department and the appeal is pending before High Court, therefore, the CIT(Appeals) ought not to have followed the order of this Tribunal.
On the contrary, Sh. R. Vijayaraghavan, the Ld. counsel for the assessee, submitted that the Assessing Officer computed the disallowance by applying Rule 8D(2) of Income-tax Rules, 1962. Placing reliance on the judgement of Delhi High Court in ACB India Limited v. ACIT (2015) 374 ITR 108, the Ld. counsel submitted that only those investments which yielded income, have to be taken for computing the disallowance under limb (ii) and (iii) of Rule 8D(2). In this case, according to the Ld. counsel, the Assessing Officer has taken the entire investments even though majority of them has not resulted in earning of any income. Placing reliance on another judgement of Delhi High Court in Joint Investments Pvt. Ltd. v.
CIT(2015) 372 ITR 694, the Ld. counsel submitted that the window for disallowance was indicated in Section 14A of the Act and was 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. Moreover, according to the Ld. counsel, this Tribunal in Rayala Corporation Pvt. Ltd. found that the disallowance cannot exceed the exempted income earned by the assessee. Moreover, the Madras High Court in Redington (India) Ltd. v. Addl. CIT (2017) 392 ITR 633 and CIT v. Chettinad Logistics (P.) Ltd. (2017) 80 taxmann.com 221 found that there cannot be any disallowance without any exempted income, therefore, the CIT(Appeals) has rightly restricted the disallowance to the exempted income earned by the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee invested funds in the shares and earned exempted income. The question arises for consideration is when the assessee earned non-exempted income, can there be any disallowance by applying the provisions of Rule 8D(2) of Income-tax Rules, 1962. The Madras High Court in the case of Redington (India) Ltd. (supra) and Chettinad Logistics (P.) Ltd. (supra) examined this issue and found that when there was no exempted income, there cannot be any disallowance. Therefore, the CIT(Appeals) by placing reliance on the decision of this Bench of the Tribunal in Rayala Corporation Ltd. (supra), has rightly directed the Assessing Officer to restrict the disallowance to the extent of exempted income earned by the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the court on 2nd January, 2020 at Chennai.