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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-10, Kolkata [in short the ld CIT(A)] in Appeal No. 254/CIT(A)- 10/W-34(2)/2013-14/2016-17/Kol dated 02.02.2018 against the order passed by the ITO, Ward-34(2), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 22.01.2016 for the Assessment Year 2013- 14.
The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance made u/s 14A of the Act in the sum of Rs. 4,65,549/- which is in excess of the exempt income, in the facts and circumstances of the case.
Shri Ashit Baran Maganlal Desai A.Yr. 2013-14 3. The brief facts of this issue is that the ld. AO made an addition u/s 14A of the Act by applying second and third limb of Rule 8D(2) of the Rules and computing the disallowance of Rs. 4,65,549/- and added the same to the total income of the assessee. This action of the ld. AO was upheld by the Ld. CIT(A).
We have heard the rival submissions. We find that the exempt income derived by the assessee was less than the disallowance made by the ld. AO. We hold that the disallowance u/s 14A of the Act cannot exceed the exempt income. Reliance in this regard is placed on the decision of the Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT reported in 372 ITR 694 (Del) wherein it was held :
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.
Respectfully following the said decision, we direct the ld. AO to restrict the disallowance made u/s 14A of the Act to the extent of exempt income. The ld AO is directed to examine the same as per law. The assessee is also at liberty to adduce fresh evidences and make fresh arguments in support of his contentions. Accordingly, grounds raised by the assessee are allowed for statistical purposes.
Shri Ashit Baran Maganlal Desai A.Yr. 2013-14 5. In the result, the appeal of the assessee is allowed for statistical purposes.