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Before: SHRI G.S. PANNU & SHRI PAWAN SINGH
ORDER
PER PAWAN SINGH, JUDICIAL MEMBER ; 1. The instant appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the order of ld. Commissioner of Income-tax (Appeals)-23 [ld. CIT(A)], Mumbai dated 10.02.2014 for Assessment Year 2009-10. The sole ground of appeal
raised by assessee relates to addition under section 14A.
2. Brief facts of the case are that the during the assessment, the Assessing Officer noted that assessee had shown dividend of Rs. 5,01,708/- which is claimed exempt under section 10(34) of the Act. The assessee has shown investment at Rs. 18,51,50,412/- during the relevant financial year. The Assessing Officer asked the assessee to explain why disallowance under section 14A be not made. No explanation was offered by assessee.
Therefore, the Assessing Officer invoked the provision of Rule 8D and Mrs. Ashita Parekh made the disallowance of Rs. 54,01,560/-. The disallowance worked out under Rule8D2 consist of Rs.15,73,812/- under Rule8D2(i) and Rs.31,43,705 under Rule 8D2(iii). However, no interest expenses under Rule 8D2(ii) was made. On appeal before the ld. CIT(A), the ld CIT(A) directed that disallowance under Rule 8D(2)(i), to disallow only the direct expenses incurred in relation to income which does not firm part of total income of assessee. The ld. CIT(A) directed that the direct expenses on account of STT Transaction charges, Demat charges in relation to the trading activities of the assessee should not firm part of disallowance under Rule 8D2(i). The other disallowance under rule 8D(2)(i) and 8D(2)(iii) was upheld. Therefore, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the ld authorized representative (AR) for the assessee and the ld. departmental representative (DR) for the revenue and also perused the record carefully. The ld. AR of the assessee submits that a very short point related to the disallowance under section 114A is involved in the present appeal. The only grievance of the assessee is that the assessee earned the exempt income of Rs. 5,01,708/- and the assessing officer disallowed Rs.54,01,560/-under section 14A r.w. Rule 8D. the ld AR for the assessee prayed that the disallowance should be restricted to the exempt income. In support of its submission, the ld. AR of the assessee relied upon the decision of Hon’ble Delhi High court in case of Joint 2 ITA No.2301/M/14- Mrs. Ashita Parekh Investments (P) Ltd. vs. CIT 372 ITR 694 (Del). On the other hand, the ld. DR for the Revenue vehemently supported the order of authorities below.
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 of Rs. 5,01,708/-. The Assessing Officer made the disallowance of Rs. 54,01,560/-. The ld. CIT(A) directed the Assessing Officer to restrict the disallowance only to the extent of direct expenses in relation to income which does not form part of total income and further directed that direct expenses on account of STT, Transaction Charges, and Dmat charges in relation to trading activities of the assessee should not form part of disallowance under Rule 8D(2)(i).
The Hon’ble Delhi High Court in Joint Investments (P.) Ltd. (supra) held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window of disallowance indicated in section 14A is only to the extent of disallowing expenditure incurred by assessee in relation to exempt income, therefore, the portion of tax exempt income surely cannot swallow the entire amount of exempt income. Therefore, considering the fact that the assessee has earned income of Rs.5,01,708/- and the assessing officer has disallowed Rs.54,01,560/-, we direct the AO to restrict the disallowance under 14A r.w. Rule 8D to the extent of exempt income (Rs.5,01,560/-). 3 Mrs. Ashita Parekh
In the result, appeal filed by assessee is allowed.
Order pronounced in the open court on 01.05.2018.