SHAH KHETAJI DHANAJI & CO,MUMBAI vs. ASST CIT 18(1), MUMBAI
What did the Tribunal hold?
The Tribunal held that disallowance under Section 14A cannot exceed the exempt income earned. Regarding other expenses, the Tribunal reduced the ad-hoc disallowance from 10% to 5%, deeming the original disallowance to be on the higher side.
What were the facts?
The assessee engaged in importing and trading metals claimed exempt income. The Assessing Officer disallowed expenses under Section 14A read with Rule 8D, exceeding the exempt income. Additionally, a 10% ad-hoc disallowance was made on various expenses like telephone and motor vehicle costs.
What were the issues?
Whether disallowance under Section 14A can exceed exempt income, and the justification for ad-hoc disallowance on certain expenses.
Which sections of the Income-tax Act were involved?
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- Ratanchand and Co. v. ITO4 citing83 Taxmann.com 242 · 2017 · ITAT
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 22.12.2015 passed by the Commissioner of Income Tax (Appeals) - 29, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The assessee has raised the following grounds: - “
1.
1. On the facts and circumstances of case and law, the Ld CIT(A) erred in confirming disallowance of Rs, 14,45,595/- u/s 14A r.w,r 8D of Income Tax Act.
2. On the facts and circumstances of case and law the Ld, CIT(A) failed to consider that disallowance u/s 14A cannot exceed exempt income. A.Y. 2012-13.
3. On the facts and circumstances of case and law, the Ld. C1T(A) erred in confirming ad-hoc 10% disallowance of amount Rs.2,12,921/- of following expenses.
1. Telephone Charges Rs.2,83,577/- 2. Depreciation on Telephone Rs.10,701/- 3. Motor Expenses Rs.8,32,264/- 4. Depreciation (Motor car) Expenses Rs,7,4l,85l/- 5. Interest on Motor Car Expenses Rs.2,45,415/-
6. Insurance on Motor Car Rs.15,398/- Total Rs.21,29,206 /- 4- On the facts and circumstances of case and law, the Ld. C1T(A) erred in confirming charging interest u/s 234 A/B/C of the Income Tax Act, 5- The assessee craves leave to add, alter or amend the existing grounds of appeal on or before the date of hearing.”
3. The brief facts of the case are that the assessee filed its return of income on 15.09.2012 declaring total income to the tune of Rs.3,50,72,953/-. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS and notice u/s 143(2) of the Act dated 13.08.2013 was issued and served upon the assessee. Thereafter, the notice u/s 142(1) of the Act dated 08.07.2014 along with questionnaire was also issued and served upon the assessee. The assessee is engaged in the business of Importers, Traders & Consignors in Ferrous & Non-ferrous Metals. On verification, the assessee was found to be earned the exempt income to the tune of Rs.9,82,816/-. The Assessing Officer applied the provision of Section 14A r.w. Rule 8D of the Act and assessed the expenditure to earn the exempt income to the tune of Rs.16,40,808/-. The assessee also claimed the Telephone Expenses, Depreciation on telephone,Motor Expenses, Depreciation on Motor Car, Interest on Motor Car Loan and Insurance on Motor Car which was disallowed to the extent of 10%. The total income of the assessee was assessed to the tune of Rs.3,73,31,532/-. The assessee filed an appeal before the CIT(A) who 2 A.Y. 2012-13. partly allowed the claim of the assessee but the assessee was not satisfied, therefore, the assessee has filed the present appeal before us.
ISSUE NO.1:- 4. Under this issue, the assessee has challenged the confirmation of the disallowance of Rs.14,45,595/- u/s 14A r.w. Rule 8D of the I.T. Act. At the very outset, the Ld. Representative of the assessee has argued that the disallowance u/s 14A r.w. Rule 8D of the Act is not required to be exceed more than the dividend income and in support of this contention. the Ld. Representative of the Assessee has placed reliance upon the law settled in (2017) 83 taxmann.com 242 (Ahmedabad Tribunal) and Principal CIT Vs. Empire Package P. Ltd. (P&H High Court) of 2015. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the CIT(A) in question. Taking into account, all the facts and circumstances, it is now well-settled that the expenses incurred to earn the exempt income is not required to be exceeded more than the exempt income. There are various judgments of the Tribunal and High Courts are on this issue. The law relied by the Ld. Representative of the assessee also speaks that the expenditure to incur the exempt income is not liable to be exceeded more than exempt income. Therefore, in view of the said facts and circumstances and keeping in view of law relied by the Ld. Representative of the assessee, we set aside the finding of the CIT(A) on this issue and restricted the expenses to incur the exempt income to the extent of exempt income only. Accordingly, this issue is decided in favour of the assessee against the revenue.
ISSUE NO.2:-
More judgments on Section 14A
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- M/S American Express Bank Ltd., Mumbai vs The Jt DIT (It)1(1), MumbaiITA 9414/MUM/2004[2000-2001]Status: Disposed8 Oct 2026AY 2000-2001
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