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PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by Revenue under Section 253 of Income-tax Act is directed against the order of ld. CIT(A)-13, Mumbai dated 01.02.2017 for Assessment Year 2013-14. The Revenue has raised the following grounds of appeal:
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing in restrict the disallowance of Rs. 17,77,62,230/- made by the Assessing Officer u/s. 14A of the Income Tax Act, 1961 read with Rule 8D of Income Tax Rules to Rs. 7,50,000/-, without appreciating the facts brought out by the Assessing Officer and considering the fact that section 14A was intended to cover those situation where there is a possibility of exempt income being earned.
Brief facts of the case are that the assessee is engaged in the business of manufacturing of Steel pipes, filed its return of income for Assessment 3032 Mum 2017-Ms PSL Limited Year 2013-14 on 27.09.2013. The return of income was selected for scrutiny. The assessment order was passed under section 143(3) on 27.02.2016. The Assessing Officer while passing the assessment order observed that the assessee has received dividend income of Rs. 7.5 Lakhs which is claimed as exempted income, the assessee has not disallowance under section 14A in the computation of income nor provides any explanation. The assessee was show cause to explain as to why the disallowance under section 14A r.w. Rule 8D should not be made. The assessee furnished its reply and contended that no expenditure was incurred for earning exempt income. Thus, no disallowance under section 14A r.w. Rule 8D is called for. The Contention of the assessee was not accepted by Assessing Officer. The Assessing Officer invoked the provision of section 14A r.w. Rule 8D and disallowed Rs. 17.77 Crore under section 14A r.w. Rule 8D. On appeal before the ld. CIT(A), the disallowance was restricted to the extent of exempt income. Thus, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.
We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorised Representative (AR) of the assessee and perused the material available on record. The ld. DR for the Revenue supported the order of assessing officer.
3032 Mum 2017-Ms PSL Limited
On the other hand, the ld. AR of the assessee submits that disallowance under section 14A should not exceed more than the exempt income earned by the assessee during the relevant assessment period and relied on the decision of Hon’ble Delhi High Court in Joint Investment (372 ITR 694) 5. We have considered the rival submission of the parties and have gone through the orders of authorities below. There is no dispute that assessee earned exempt income only of Rs. 7.50 Lakhs during the relevant Financial Year. During the assessment the assessing officer invoked the provisions of Rule 8D and disallowed Rs. 16.50 crore under Rule D2(ii) and Rs. 1.27 Crore under Rule D2(iii). The ld CIT(A) restricted the disallowance to the extent of exempt income by following the decision of Tribunal in Daga Global Chemical Vs ACIT (ITA No. 5512/M/2012) and in Sylvex Cable Co Pvt Ltd Vs DCIT (ITA No. 858/M/2011). 6. The Hon’ble Delhi High Court in case of Joint Investment (P) Ltd Vs CIT (372 ITR 694) held that by no stretch of imagination can section 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 section 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. Considering the decision of Hon’ble Delhi High in Joint 3032 Mum 2017-Ms PSL Limited Investment (P) Ltd. (supra), we affirms the order of ld. CIT(A). Hence, the ground of appeal raised by the revenue is dismissed.
In the result, appeal of the Revenue is dismissed.